Labor Day often marks the unofficial end of the summer doldrums—that stretch of lower trading volume and generally sluggish activity running through June, July and August. This year the doldrums weren't exactly dull. While much of the market struggled to establish sustained momentum, Energy and Precious Metals emerged as two of the clearest areas of strength, producing some of our better trades of the year. Now we are approaching what historically can be a much more interesting period for traders. September has traditionally been a difficult month for stocks. The fourth quarter, on the other hand, has historically been the strongest part of the calendar. That combination has my attention. QQQ Daily QQQ: A Decision Point Approaching The QQQ Daily chart illustrates exactly why I'm approaching September with a bearish bias—but not yet a bearish trade signal. QQQ has retreated into major rising support while a shorter-term declining trendline continues to press down from above. The room between the two is rapidly disappearing. Something is going to have to give. A decisive break below the rising blue support line would generate the kind of Sell Signal we would be interested in trading, particularly given September's historically weak seasonal tendencies. On the other hand, if support holds and QQQ breaks the declining red resistance line instead, the bearish thesis goes on the shelf. That's the distinction between having an opinion and having a trade. Right now, the opportunity is pending. My working assumption coming out of the Labor Day weekend is to be prepared for additional weakness first—and then to watch carefully for a possible change of direction as we move toward the final three months of the year. But that's an expectation, not a trade. Seasonality doesn't trigger our trades. Price does. We will continue doing exactly what we've been doing: looking for trendline breaks backed by Confirmatory Analysis, and letting the market tell us when it's time to act. XLE Two-Day - New Highs Premium Service Energy Calls Note: New highs in XLE percentage gains circa Sep 2nd. Meanwhile, Energy Isn't Waiting While QQQ is sitting on major support and threatening a potential Sell Signal, Energy is doing something quite different. XLE is making new highs. The Energy ETF has broken above the declining resistance line from its spring high and has now pushed above that prior high itself. If my Elliott Wave interpretation is correct, the July low marked Wave 4 and Wave 5 is now underway. That's important for more than just our Energy positions. Markets don't always move together. Money rotates. While one part of the market is weakening, another can be beginning—or continuing—a major advance. This is exactly why I don't want to approach September with a blanket “stocks are going down” thesis. QQQ is threatening a breakdown. XLE is breaking out. We'll trade what the charts actually give us. The Next Setups Are Coming Right now I see a market in transition. We have September's historically bearish tendencies immediately ahead of us, several major averages sitting near technically important levels, and two sectors—Energy and Precious Metals—that continue to demonstrate relative strength. That is an interesting combination. But interesting isn't actionable. Not yet. The charts will tell us when that changes. For now, I'm watching, waiting and letting the setups come to us. The summer doldrums are ending. And I suspect we're going to have considerably more to trade in the weeks ahead.
