Market Update: Bulls Regain Momentum

9/23/2024 8:00am (EST)

Commentary

The market was mostly lower on Friday following Thursday’s delayed rally from the half-point rate cut by the Fed. The breakout to all-time highs was an ongoing bullish development and comes ahead of the upcoming third-quarter earnings season.

The Nasdaq traded down to 17,835 while settling at 17,948 (-0.4%). Fresh support at 17,750 easily held. A close below this level would suggest risk to 17,650-17,500 and the 50-day moving average. Resistance is at 18,000-18,150.

The S&P 500 closed at 5,702 (-0.2%) with the intraday low hitting 5,674. New and upper support at 5,700-5,650 was tripped but held. A close below the latter would imply a retest towards 5,600-5,550 and the 50-day moving average. Undefined resistance is at 5,750-5,800 with Thursday’s all-time peak at 5,733.

The Dow made a trip to 42,138 before going out at 42,063 (-0.3%). Current and lower resistance at 42,250-42,500 held with Thursday’s lifetime high at 42,160. A close above the latter would indicate upside towards 42,750-43,000. Support is at 41,750-41,500.

Volatility Index

The Volatility Index (VIX) kissed a low of 15.81 while finishing at 16.15. Late August and upper support at 15.50-15 held. A drop below the latter and the 200-day moving average would signal weakness to 14-13.50. Resistance is at 17.50-18 and the 50-day moving average.

Monday’s earnings announcements:

Before the open: Uxin (UXIN)

After the close: AAR Corp. (AIR), Phoenix Motor (PEV), Red Cat Holdings (RCAT)

Economic News

PMI Manufacturing Index – 9:45am

Market Thoughts

Here were our thoughts from the August 26th Monday morning update:

“The comments from Powell comes just over three weeks out from the Fed’s mid-September meeting, which should see the central bank announce its first interest rate cut since 2020.

If the bulls play their hand right, we could see a breakout rally to fresh all time highs with a bullish thesis into next month. From there, it could be a sell-the-news event on the rate cut into month end that would then set us up for October and another round of quarterly earnings.”

Bingo. Thursday’s rally cleared and held key resistance and fresh round numbers.

To start, the Nasdaq recovered 18,000 and the Russell reclaimed the 2,250 level. The Nasdaq cleared 18,000 on July 23rd and again on August 22nd but failed to hold this level both times. The last time the small-caps cleared and held 2,250 was on July 31st with the intraday 52-week peak reaching 2,299.9984.

The S&P and Dow tagged fresh all-time highs while closing north of 5,700 and 42,000, respectively, on Friday. Another 3%-5% upside would get 5,850-6,000 in focus for the S&P and 43,500-44,250 for the Dow.

The Nasdaq is currently 4% away from its July record peak at 18,667 while the Russell is 10% away from its all-time top of 2,441 from November 8th, 2021.

Friday’s slight pullback held fresh and key support levels for the Dow and S&P and was a bullish way to end the week. However, the Nasdaq and the Russell did close back below 18,000 and 2,250 and levels we would like see recovered to start the week.

The action could slow as Wall Street gets prepared for the third-quarter earnings season. It is not often major companies come out early and warn of a possible earnings or revenue miss, but if they do, it’s usually a few weeks before the end of the quarter and the current time frame we are entering.

If higher highs are made into month end, great. If not, key support levels are at Nasdaq 17,500; S&P 5,500; Dow 40,000; and Russell 2,175. All of these levels are just above or below the 50-day moving averages and something easy to remember.

With another breakout to fresh all-time highs, we wanted to check in on our notes from February 26th:

“The Nasdaq’s all-time intraday high is at 16,212 from November 22nd 2021 and where we have talked about a possible double-top forming if there is not a strong breakout from current levels. However, if the “AI” rally remains strong over the near-term, and this year, dare we say Nasdaq 20,000?

At current levels, this would represent another 25% upside but can this type of rally be sustained? While we are at it, 25% for the Dow from our near-term price target of 40,000 target would be 50,000 and for the S&P we would have to raise our near-term target from 5,100 to 6,500.

That would be amazing if those targets trip this year, but more likely in 2025, and that’s assuming there are no major corrections, or world disasters. In any event, we only focus on the near-term and where the market will be in a few weeks or a month.”

With that said, the charts and the VIX continue to give us great clues. If the VIX gets below 15, it would be an ongoing bullish signal for the market. A close back above 17.50 and the 50-day moving average would be a yellow light.