Estimated range of SPX for week of 9/3/19

Uncertainly

A perfect storm of uncertainty seems to be brewing for this week. But that uncertainty does not seem to be the kind that will significantly derail this market — at least not this week. It just adds to the drama.

The set-up for the SPX has about a 100-point range for the week. That’s pretty big – but the test is near the top of the range.

The range is built around the small head-and-shoulders pattern that has been forming over the past several weeks. The left shoulder peaked at 2954. So the movement of the SPX will be interesting here as we approach the potential right shoulder. Do we break up or down from here? (hint: the trend appears to be up)

With Hurricane Dorian slated to hit the East Coast this week, this test could be tricky. While the storm does not change the geopolitical and economic mix much, it will be a meaningful distraction to productivity in an already-shortened ‘back-to-routine’ week (does that even make sense?).

Typically activity picks up in September as kids across the country are back to school. There is no significant holiday between now and Thanksgiving in November. And the shortened work-week post-Labor-Day-holiday often suffers what many shortened weeks do – heightened volatility as the market crams a lost day into 4 (and yes, this is mostly anecdotal, but it certainly ‘seems’ this way).

With Dorian in the mix, the question is also whether or not there will be a measurable impact to the economy in the form of a slowdown in productivity or massive damage that requires repairs.

Bottom line, the international picture has not presented any significant revelation the market is trying to digest. So the news cycle will likely follow Dorian’s impact for this week, with some side discussion about Brexit and interest rates. Throw in some ‘I hate the other team’ political banter, and the week isn’t really that out of the ordinary.

The technical picture, strangely enough, appears to have volatility narrowing compared with prior weeks. The question is more about whether or not the markets find support at these levels and grind higher, or if we stay in a sideways pattern with volatility for a while.

If the story remains unchanged, the support area for the SPX is about 2854, with consolidation happening in the 2900-2950ish range. Resistance isn’t really a factor here – it’s simply all-time-highs. And if those are taken out, that’s a good sign. The concern comes if the market closes below 2825. A breach of this level could mean more significant downside to follow.

For this week, just hang on. There may be a few whip-saws, but the data indicating a more significant decline hasn’t shown itself yet. We’ll see how many headlines traders try to play off of though.

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