Bulls Charge Ahead, Crushing Bears Once Again

Market Roars Back with Another V-Bottom Rally from Short-Term Oversold Levels

What a week it’s been! After hitting short-term oversold conditions on Friday, September 6th, the bulls found their footing, staging a powerful reversal on Wednesday and rallying through to the end of the week.

In my previous post, I noted that we had reached oversold levels and predicted some stabilization or perhaps even a bottom, although I didn't expect it to be the bottom given how much the breadth trend had deteriorated.

However, it turns out that was the bottom, and now the market is once again nearing all-time highs as we head into a pivotal week, with the FOMC set to release its highly anticipated monetary policy statement, including a likely rate cut.

Looking at the longer term, my bullish outlook remains unchanged. However, in the short term, I expect a challenging environment for short term traders, with continued volatility and sharp, unpredictable moves in both directions.

Let’s dive into some charts to explore what’s happening in the market.

Breadth and Trend Studies:

Breadth studies are back to a bullish configuration on all time frames. The extreme moves and volatility managed to trigger a mid term negative breadth signal on Monday albeit for a few days. By Thursday it was back to positive. Whipsaw is something that will occur if you are using trend following indicators. In most market conditions this signal is robust and will avoid whipsaw however the extreme moves up and down both in price and breadth have been a challenge as of late for this indicator.

Trend studies are mostly positive again across the major indices. However, a lingering bearish concern is that the long-term trend signals remain negative for both Bitcoin and the VIX. While the overall bullish bias is clear, these bearish signals suggest that the path forward may be anything but smooth in the near term.

FOMC on Wednesday:

The market is currently anticipating a highly dovish FOMC statement along with a 50 bps rate cut. However, I believe these expectations are overly optimistic, and there’s a strong possibility the market could be disappointed by a smaller 25 bps rate cut or a less dovish statement.

Much of the potential bullish news may already be priced in, given the significant rally across most indices and sectors since last Tuesday.

That said, even if the Fed delivers a smaller-than-expected cut or a less dovish policy, rate cuts and a more accommodative Fed remain bullish signals from a mid- to long-term perspective.

Conclusion:

My long-term outlook remains clear: bullish.

In the short term, the bias is also bullish, supported by technicals across all time frames. However, I anticipate increased volatility and rapid price movements over the coming months.

After such a strong rally from recent lows, I’m definitely not a buyer at these levels. It seems likely that we’ll see a pullback soon, which would provide a better entry point for short-term traders looking to take on bullish positions.

The S&P 500 is approaching resistance near its all-time highs, which I believe may take some time to break through. Unless the Fed delivers a 50 bps rate cut along with an extremely dovish statement, this resistance is likely to hold for now.

Best regards, and have a great week!

Victor Riesco, CMT