Upcoming Webinar: A More Precise Approach to Fixed Income - Relative Strength Rotation Among Sector-Based High Yield Bonds

Join us on Tuesday, September 20th at 2 pm EST for a discussion with BondBloxx. In this webinar, Cole Feinberg and JoAnne Bianco, Partners at BondBloxx ETFs, will join Chuck Fuller, Portfolio Manager at Nasdaq Dorsey Wright to discuss what is driving high yield fixed income from a sector perspective, and how the tactical nature of the BondBloxx High Yield Sector Rotation ETF Model can position investors to take advantage of the changing landscape. There will also be ample time for questions from the audience. This event is approved for one hour of CIMA and CFP CE credit.

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Triple Witching occurs when stock options, futures, and futures options all expire on the same day, which is generally on the third Friday of the last month in each calendar quarter. Friday, September 16, will be the third such "triple witching" of 2022; the other prior two occurring in March and June. Technically we could employ the phrase "Quadruple Witching", as the advent of single stock futures provided a fourth derivative medium also expiring on Friday, but old habits die hard, and frankly "Quadruple Witching" just doesn't roll off the tongue in quite the same fashion. Nonetheless, these "witching" weeks can often bring with them an increased level of volatility.

While the word volatility, in and of itself, generally brings with it negative connotations, it does not necessarily mean the market must go down. In fact, 63% of all “witching” Fridays since June 1987 have seen the S&P 500 Index SPX show positive performance for that week. This was not the case this week, as the S&P 500 notched a weekly loss of -4.77% to mark the largest weekly loss for SPX since June 17 (the last witching Friday), when the index dropped -5.79%. While the last two “witching” Fridays have seen sharp declines, the first witching Friday this year occurred on March 18 and saw the index post a significant weekly gain of 6.16%. This variation indicates the uncertainty in how these weeks will play out, but it has been clear that these weeks bring added volatility.

To get an idea of how past Triple Witchings in September have played out historically, we went back to 1987 and pulled data on the S&P 500 Index SPX during the week with Triple Witching culminating on that Friday. These 36 weeks have averaged a return of -0.01% for SPX, which is about flat, with 58% of the weeks showing a gain. These numbers are slightly lower than the broader numbers for Witching Fridays in any month. Over the next week, however, the SPX tends to see more negative returns following a Witching Friday in September, with an average loss of -0.76% and only a 26% positive hit rate. Again, these numbers are slightly lower than the other Witching months, but we see a similar drop-off in the subsequent weeks. It is also interesting to note that the SPX averages about a 3.5% spread between the weekly highs and lows during September Witching weeks, although the spread this week came in at 7.34%, the highest since 2011. We generally see similar spreads in the week that follows, which sits at an average of 3.20%, highlighting the potential for further volatility as we head toward the end of the month.

Do you want to take your analysis and portfolio management to the next level? Do you need to evolve your business strategies to address the ever-changing market? If so, join us from November 2nd through November 4th for the Nasdaq Dorsey Wright Fall Symposium in Richmond, VA!

The Symposium is designed specifically for financial professionals who already utilize Point & Figure and Relative Strength methodologies in their practice, as well as those who would like to learn more. Attendees have the option to add an introductory half-day session prior to the main event, designed to provide a firm understanding of the methodologies discussed over the following two days. The main seminar will start on Thursday morning, and feature a combination of lectures, small group sessions, case study work, website tutorials, and Q&A time. There will also be ample opportunities to network with other advisors. The full event will expose you to new ideas, frameworks, and tools that can help you manage your business more effectively. You will have a chance to engage with the analyst team from Nasdaq Dorsey Wright as well as seasoned peers in the business. The Symposium is pending approval for CE credit toward the CFP®, CIMA®, CPWA®, and RMA certifications.

Event Agenda Coming Soon!

Dates

Wednesday, November 2nd, 2022 – Introductory Sessions

Thursday, November 3rd and Friday, November 4th, 2022 – Advanced Sessions

Fee –

Early Bird Discount of $200/person will be applied to registrations made on or before September 30th, 2022!

$1,200 per person (Advanced Sessions)

$1,400 per person (Introductory & Advanced Sessions)

*Payment will be processed upon sign-up and is inclusive of breakfast and lunch both days, the cocktail reception and dinner Thursday evening, and all training materials.  Fees are non-refundable and non-transferable.

Location

The Historic Jefferson Hotel in downtown Richmond, VA

About the Jefferson Hotel: Since 1895, The Jefferson Hotel has been recognized by discerning travelers as Richmond's grandest hotel and one of the finest in America. Known for its genuinely friendly service, luxurious guestrooms, breathtaking architecture, and elegant décor, The Jefferson Hotel is reminiscent of a more gracious era. Guests of The Jefferson enjoy a variety of amenities and services, unmatched by any other luxury Richmond hotel.  Visit -  https://www.jeffersonhotel.com/

Travel

Everyone is responsible for their own travel arrangements and hotel reservations. A group discount is available at the Jefferson Hotel when reserved on or before October 3^rd, 2022 (information provided upon registration and receipt; limited quantities available).

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As recently discussed in a DWA Prospecting Report, September is historically one of the weakest months for equities and so far, the month is living up to precedent with flying colors. Through trading yesterday (9/15), the S&P 500 (SPX) and the Dow (.DJIA) were down over -1% while the Nasdaq Composite had lost over -2% since the end of August. With total return data beginning in 1957, that is the 18th worst first half (1H) September performance on record for the S&P 500. Before September 2020 when SPX was down -2.75%, you must look back to 2008 to find a lower 1H return.

A loss of just over -1% may seem anticlimactic for a period holding the “weakest month of the year” title, but historically, the back half of September has presented the most challenges. Since 1957, the 1H September average and median return have been 0.07% and 0.19%, respectively, and positive about 53% of the time; meanwhile, the second half (2H) September average and median return have been -0.59% and -0.09%, respectively, and positive just 47% of the time.

Maybe this has been a thing of the past and archaic market environments/structures are skewing these numbers? The data suggests otherwise. In fact, since 1990 the return profile is worse as just 38% of 2H Septembers have been positive with an average loss of -1.03%. Maybe our lookback is still too far? What about just the past 10 years? From 2012 – 2021, the 2H of September has been negative 70% of the time with an average loss of -0.8%.

A coincidental observation relates to market volatility, commonly discussed via the CBOE SPX Volatility Index (VIX). Along with the 2H of September being historically weak from a return perspective, volatility also tends to be higher - which makes sense given that VIX and SPX tend to be negatively correlated. As for exactly why the second half of September is more volatile, the jurors and academics alike are still out deliberating, but some common attributions are quarter-end rebalancing/trading and the end of summer travel/time off work.

The VIX ended around 26 yesterday (9/15) which puts it slightly above the 30-year average, but it would not be uncommon to see this tick even higher. In fact, this upward trend could be evidenced already as earlier this week (9/13) we saw VIX break through its bearish resistance line and give a Point & Figure buy signal for the first time since June of this year.

Now, before the bears get too excited about this potential weak/bumpy stretch ahead of us, notice we left out a key piece of information in the first return tables which we have now added below - the past performance for the rest of the calendar year (far right-hand column). From the end of September to the end of the calendar year the S&P 500 has been positive over 80% of the time with an average gain between 4% and 5% – and that stat is consistent from 1957 to 2021. Furthermore, of the times SPX has been down -1% or more in the 1H of September, the rest of the calendar year (from month end until year-end) has been positive 14 out of 17 times - the three outliers being 1987, 2000, and 2008.

Investors tend to have a love/hate relationship with October (which we will probably outline in a report next week) so a majority of this could be attributed to the tailwinds of the seasonally strong period in the market, Santa Claus Rally, Sell in May Go Away Come Back in November, or whatever you want to call it. Regardless, the numbers speak for themselves.

With 2022 being a year unlike any other, by seemingly countless measurements, there is a real possibility of deviating from historical norms given that has been the theme this year. However, someone with their glass half full may rationalize a potential buying opportunity within the next several weeks based on these metrics of seasonality.

Portfolio View - Major Market ETFs

Additional Comments:

The SPDR Dow Jones Industrial Average ETF Trust DIA remains on the buy signal printed a month ago and moved lower this week to a price of $310. The fund has a current score of 2.26 with a negative score direction yet barely remains in a positive trend. The fund scores below the average US score of 2.76. Support is offered at $300, with further support shown at $265 from October 2020.

The iShares MSCI Emerging Markets ETF EEM gave its ninth consecutive sell signal this week and is at a current price of $38. The fund has a very weak score at 0.38 with a -1.43 score direction and remains firmly in a negative trend. EEM is also beneath the average non-US score of 1.47. The overall technical picture for EEM remains negative. Support is seen at $35.50 on the default chart. 

The iShares MSCI EAFE ETF EFA reversed up this week into a column of X’s to a current price of $63.00. The fund has a weak score of 0.45 which is below the average non-US equity fund of 1.47 and is paired with a -1.34 score direction. The fund remains in a negative trend and on a second consecutive sell signal. Support is offered at $60 on the default chart.

The iShares MSCI Frontier and Select EM ETF FM reversed down this week to a current price of $26.50. The fund has a weak score of 1.90 and is paired with a -1.73 score direction. The technical picture is negative, following other international equity funds lower. The fund is seen at support on the default chart at $26.50

The iShares S&P MidCap 400 Index Fund IJH remains in a column of O’s failing to test its bearish resistance line from last month. The price remains unchanged, sitting at $240. IJH has a current fund score of 3.58, which is above the average US score of 2.76. The reversal back into O’s brings the fund back into the middle of its 10-week trading band.  Support can be found at $220 on the default chart.

The iShares S&P SmallCap 600 Index Fund IJR reversed down into a column of O’s this week to give a sell signal and is at a current price of $93. IJR remains under the 3.0 score threshold at 2.41 but does have a .76 positive score direction. Initial support is offered at $90 and further support is offered at $89.

The Invesco QQQ Trust QQQ moved lower this week to give a sell signal and is at a current price of $290. With this week’s movement, the fund violated its bullish support line. The recent 1.76 fund score is lower than the average US fund (2.76), and the fund holds a negative 2.29 score direction. QQQ initial support is offered at $280 and further support at $270 on the default chart.

The Invesco S&P 500 Equal Weight ETF RSP reversed down this week giving a sell signal and testing its bullish support line. The fund is at a current price of $138 and still holds a positive score direction of 1.01, paired with a fund score of 4.70. This beats the average S&P 500 Index fund score of 3.31 and remains the highest score of funds in this report. The fund remains at support, its bullish support line, yet further support is offered at $132 on the default chart.

The SPDR S&P 500 ETF Trust SPY reversed down into O’s with this week's action to a price of $385, violating its bullish support line and giving a sell signal. SPY has a 2.38 score posting yet a positive score direction of 0.67. Initial support is offered at $375 and further support is offered at $365 on the default chart.

The Invesco S&P 500 Top 50 ETF XLG remains in a column of O’s this week and currently sits at a price of $290. XLG has a 2.11 fund score and a negative score direction of -2.15. Like the other large-cap domestic equity funds, this mega-cap representative saw its technical picture weaken over the past several months, and while the return to a buy signal in August is a positive sign, further confirmation is needed before signaling a return to a more positive technical picture. Initial support is offered at $280 and further support at $250 from October 2020.

Daily Option Ideas for September 16, 2022