Heisenberg
Stock Chartist, Long/Short Ideas
US large-cap equities refuse to go down despite many negative headlines that should have cut several percent by now, showing strong resilience. Since 2009 November has been green 14 of 17 times, and the three red ones were essentially flat. That leaves bears only a small window of October volatility before seasonally stronger months. x.com x.comÂ
The S&P 500 can reach 8,000 or more by year-end, but a small speed bump is likely first, and a 5-7% pullback would be a buying opportunity. The VIX is around 15.4, yet in each of the last eight Octobers, back to Trump's first midterms, it hit at least 21.46, with an average peak of 28.29. The last time the VIX reached 21.46, in early June, the S&P 500 fell 5%. x.com x.comÂ
US equities tend to perform well after October in midterm years, making the historical pattern hard to ignore. Since 1950, the S&P 500 rose in 19 of 19 observed 12-month periods after October, averaging 16.6% with a 3.0% worst return. October and November also averaged gains, but history is not a promise. x.comÂ
A sharp VIX spike followed by a reversal has historically favored SPY over the following weeks when VIX was at or below 25. After a 21% spike Friday and a 7% fall today, SPY's one-week return averaged 1.10% in 14 comparable events over the past decade, with gains in 12; the next-day average was just 0.07%. Could this have been capitulation? x.com x.comÂ
US large-cap stocks look set for a weak October and a needed reset, as transports and now financials have broken down, often a week or more before the major indices. Midterm years have brought index drawdowns of about 10% in 2014 and 2018 and 14% in 2022, which would put the S&P 500's 7,000-7,200 area in focus. Even an Iran resolution would likely see its initial pop faded as liquidity rolls over in early October and hard by mid-October. With the VIX in the 14s, protection is cheap. x.com x.comÂ
Post-midterm seasonality and hedge funds' flip from long to short make this reset the next great opportunity to build for a bull market driven by the Innovation Revolution. Since 1950, the S&P 500 has gained 29.9% on average over the next 15 months in all 19 comparable years. This selloff looks pre-war driven; military action looks nearly certain and may be the most anticipated and discounted ever. A 90-day, 32% Nasdaq bear market preceded the dot-com era's final 18-month melt-up. x.com x.comÂ
Improving breadth and GPUs massively outrunning depreciation costs put US-equity risk/reward heavily in bulls' favour. Some 59% of S&P 500 stocks are above their 50-day average; the Nasdaq 100 is positive over five trading days, and small caps bounced off their 200-day average. Buy gradually, as the selloff may not be completely over. x.comÂ
Short dealer gamma could amplify SPY and QQQ selling as liquidity drains. SPY's first long-gamma strike is 745 next week, a possible magnet; QQQ has no long-gamma floor in frame, with vanna near 700. A bottom looks likelier next week than this week, with chop between. When strength returns, probably late October, easing should flood equities sooner than most expect: a strong November, stronger December and a Santa rally, with high beta leading into year-end. Its early hourly turn could reverse. … Show more
Post-midterm market strength calls for patience with US large-cap equities. KHerriage's quoted post cites an average S&P 500 gain of 29.9% over the next 15 months in post-midterm periods since 1950, with gains in 19 of 19 years. x.comÂ
US large-cap equities do not look like a bubble at current forward valuations. The S&P 500 forward P/E is below both its five- and ten-year averages, while tech and momentum have suffered their worst five-month decline by far. x.comÂ
US large-cap equities are vulnerable because earnings have not caught up with total market capitalization. The market is farther from its 200-week moving average than at any point in 18 years, and cracks are starting to show; staying bullish ignores these risks. Rate hikes remain possible, oil is still high, and yields may climb again, so now is the time for caution. x.com x.comÂ
Strong corporate earnings make weekend crash panic a contrarian buying opportunity in US large-cap equities. Most individual stocks have already gone through bear markets despite the S&P 500 nearing record highs; weekend social-media panic rarely leads to a genuine economic downturn and instead offers long-term investors an attractive entry point. x.comÂ
