So long summer. It was fun. But now the colors are changing.

Summer is over. Did anybody notice?

For the markets June, July and August slid past in a kind of shimmery summer haze. The S&P 500 (SPX), the large-cap index, gained five points in June, start to finish. July was a little more ambitious: up 73 points.  August was down three. Exciting stuff.

We could have skipped this. If you sold at the end of May and went away, as the folk wisdom has it, you would have missed about 70 points when August closed at 2170.

In fact if you went away at the end of May, 2015, and did nothing until the end of August this year, you would have missed gains of … wait for it … 63 points. For 15 months of Sturm und Drang.

And while we were sleeping walking to almost zero net gain, the market kept making all-time record highs on a daily basis:  three in June, eight in July, six in August.

The market has never been higher; and it has been stalled at or near this top, unable to move up and not allowed to move down, for more than a year.

Little wonder then that traders are playing computer games instead of the markets. It is too late to go long, because there is almost no room for profit on the upside. And every time you go short, you get murdered, squeezed out by a manufactured new high that doesn’t hold. 

 So good-bye summer.  Here comes September and October, the two worst months of the year for equities, with the nastiest presidential election in decades thrown in for good measure.  I don’t think we are going to be able to sleep through the Fall.

Last week

The S&P 500 cash index ($SPX) closed at 2178.98 last Friday, up 10.94 points for a 0.5% net weekly gain.

The index rallied on Monday, and retraced for 3 days to wait for the Non-Farm Payroll report, which was disappointing. The traders assumed this means no interest rate increase in September and the market then bounced 10 points into the close. Bad news is good news again.

This week

This week could be a little choppy. There are multiple expiration dates for index options (Sept 6, 7 and 9) and the futures contract will roll over to the December contract on Thursday.  It’s a short week, so all the action will be concentrated in four days. Expect more volatility than usual.

The market is overbought in the intermediate term.

There is relatively little in the way of economic reports this week:  the Beige Book on Wednesday and weekly Jobless Claims on Thursday are the main items in terms of market activity.

Goldman Sachs is making an argument that the Fed will raise interest rates in September, and says there is a 55% likelihood of that happening. The market is pricing in a 30% possibility of a September increase. We maintain our original stance: not gonna happen. There will, however, be a lot of tough talk before they let it slide. Again.

We anticipate the sideways market is likely to continue for a time. The narrow August monthly range (roughly 2195 to 2150) could be repeated again.


For the S&P500 mini futures (ES)

The ES remains inside the two month’s consolidation range from 2191.50 to 2141.50.

Today the 2178.50 level is a key line. Staying above it could lead ES to retest August high area 2191.50-93.50 or higher up to 2200 to challenge the psychological resistance line.

If it fails to move above 2183.75 (last Friday’s high) the ES is likely to move back to Friday’s low area 2171.75 or lower to 2164.50. We mainly should expect a repeat of last Friday’s range. Buying on the dip will continue as long as the 2150-45 zone holds up.

Major support levels: 2155-56.50, 2146-43.50, 2133-28.50, 2103.50-00.75
Major resistance levels: 2188-89, 2196-93, 2103.50-06.50, 2214.50-12.50

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