Stock markets typically undergo a seasonal correction in the second half of September before resuming growth in October and November. Both fundamental and technical factors suggest that such a reversal is long overdue.
Two key reports released yesterday showed that the US economy may be in a state of early stagflation due to sluggish GDP growth and persistent inflation. This is a particularly problematic mix as a slower economy usually leads to lower prices, not higher ones. When people lose their jobs or face the risk of unemployment, they tend to spend less, forcing businesses to cut prices. However, if residents' purchasing power is falling but prices are still rising, it is a sign of a serious economic malfunction.
US inflation rose by 0.4% in August, bringing the annual rate to 2.9%, the highest since January. In July, it was 2.7%.
At the same time, initial jobless claims surged last week, reaching a four-year peak. According to the Labor Department's report released Thursday, about 263,000 people filed for benefits in the week ended September 6.
An abundance of negative factors will probably send the S&P 500 (SPX) into a correction in the near future.
The technical setup of the S&P 500 broad market index has been forming a bearish divergence since July. These signals are only getting stronger and point to an upcoming downward reversal.
The overall recommendation is to sell SPX. Profits should be taken at the level of $6,000. Stop Loss could be set at $6,800.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
