Mish's Market Minute

How to Navigate September Trading with Gold, Junk Bonds, and Long-Term Bonds

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The market is about to enter the month of September, which many investors view as a historically negative month in the trading year. Also called the September effect, some analysts attribute a selling from investors rebalancing their portfolios at the end of the summer. However, is the September effect something we should be worried about?

It's possible the September effect has turned into a self-fulfilling prophecy of investors expecting a selloff, meaning that therefore they sell and create the negative month. Another idea is that many mutual funds have a fiscal year-end in September and therefore, by rebalancing their portfolios through selling weak stocks, they help create a negative impact.

Keeping that in mind as we enter September, here are three important symbols that can guide us through market strength or weakness: the Gold ETF (GLD), the High Yield Bond ETF (JNK) and the 20+ Year Bond ETF (TLT).

Gold and Long-Term Bonds can be viewed as safety plays, while High Yield Debt (JNK) can be used as a risk on gauge. JNK is a risk-on indicator because it shows investors' appetite for risky high-yielding investments. Currently, GLD is attempting to hold over the 200-day moving average while TLT has support at the 50-DMA as seen in the above chart. If we see more strength in TLT's this coming month, we should be careful, as it could be signaling more weakness.

However, rising GLD prices may come in the form of people looking for safety, but also people looking for protection from rising inflation. That means gold could have a better chance of rising along with the overall market. On the other hand, JNK is sitting near new highs confirming a risk-on market environment. Therefore, we should keep a positive expectation for September while watching these three symbols, as they could hint towards coming market weakness or extra strength.


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ETF Summary

  • S&P 500 (SPY): 447 support level.
  • Russell 2000 (IWM): 225 support to hold.
  • Dow (DIA): 356.60 high to clear. 351 support.
  • Nasdaq (QQQ): Holding near highs.
  • KRE (Regional Banks): 67.22 recent high to clear. Needs to stay over the 50-DMA at 64.32.
  • SMH (Semiconductors): 264.22 support the 10-DMA.
  • IYT (Transportation): Needs to get back over the 50-DMA at 255.60.
  • IBB (Biotechnology): 173.69 to clear.
  • XRT (Retail): Needs to get over 97 and hold.
  • USD (Dollar): Doji day. Needs to hold the 50-DMA 92.59.
  • DBA (Agriculture): Breaking down from highs. Flirting with the 10-DMA at 19.15.
  • VBK (Small Cap Growth ETF): 292.55 support.


Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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