Hey, Ross here:
Welcome back to a new week.
And it’s a loaded one – with the Fed making its rate decision on Wednesday…
Amid a market that seems to be rapidly weakening.
Let’s take a look.
Chart of the Day
The futures market is currently pricing an 86.7% chance that the Fed raises rates on Wednesday.
And underneath the indexes, breadth has been deteriorating too.
This chart shows the percentage of large-, mid- and small-cap stocks trading above their 20-, 50- and 200-day moving averages.
These numbers have taken a huge hit.
Only about a quarter of stocks in each group are still above their 20-day moving average.
Fewer than 40% of stocks are trading above the 50-day.
The long-term 200-day average is still holding up…
But for the short and medium-term averages, the weakness is broad.
Add in September’s lousy seasonal reputation and you’ve got a pretty easy bearish case.
Retail has certainly been feeling it…
With the bears outnumbering the bulls for 24 out of the 37 weeks this year – including most recently.
But there’s a counterintuitive truth about “bad news” that most traders don’t expect…
Something that causes them to miss out on opportunities.
Insight of the Day
Bad news only hurts when it surprises you.
Stocks don’t react to whether something is objectively “good” or “bad.”
They react to whether it comes in better or worse than what traders already expected.
If the market is pricing an 86.7% chance of a Fed hike, then a hike on Wednesday isn’t some bolt from the blue.
Traders have already had plenty of time to position for it.
Same thing with September weakness.
Everyone already knows that September has a rough historical record.
And the deterioration in breadth is already sitting there on the chart.
So from here, the bearish case has to keep getting worse to keep surprising people.
If the Fed does exactly what traders expect…
If breadth simply stops deteriorating…
Or if the economic data comes in a little better than feared…
That can be enough to quickly bring buyers back.
And there is a silver lining to weak breadth that most don’t realize…
It makes it easier to spot areas of strength.
When three-quarters of the market is below its 20-day average, the stocks that still refuse to break down start standing out.
They’re not getting carried by some broad market surge.
Somebody is continuing to buy them anyway.
And when that “somebody” is a large institution working a serious position into the stock…
That’s a huge opportunity to use their money for our gain.
I’ll share more about that tomorrow morning, so keep an eye out for that.
But for today…
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Customer Story of the Day
“Ross is a minefield of knowledge…
Really enjoying his live sessions – a lot of information to process being new enough to the game.
But I’m enjoying the teaching style as he breaks things down well and says it how it is – no fluff no messing about.
This man knows his onions recommend 10/10”
Ross Givens
Editor, Stock Surge Daily
