|Friday Roundup: September Seasonality, The Gold Index, Commodities Action|
By Phil Erlanger SEP 01, 2006 12:30 PM
Seasonal cycles do not cause market moves, they simply reflect tendencies.
We have harped about the pending weak seasonal period during September. The market did well during the August period of positive seasonal heat, but the real test will be the action going forward into mid-October:
The above chart of the NASDAQ 100 index shows that a rally often occurs in August. September, however, is most often a time of weakness in which seasonally lasts into mid-October. Seasonal cycles do not cause market moves, they simply reflect tendencies. It is quite possible for markets to move contrary to seasonal cycles – when they do, it is a sign that spot factors are strong enough to outweigh seasonal factors.
The EBB (Erlanger Big Barf) indicator measures the momentum of the VIX relative to the momentum of the S&P 100 Index. The higher the EBB, the more bullish are option traders. Divergences following extremes are set-ups for contrary moves. The strength in August is unconfirmed by the EBB – a move above the blue lined channel (see chart) would be constructive. A break below the “zero” line would trigger an indication for a pullback phase.
Gold and Other Commodities
The Gold Index rallied off of its long-term trendline and has etched out a tightening pattern of consolidation that began in January. The Gold Index is trying to break above the key 150 resistance level:
Gold and base metal prices continue to consolidate. Energy prices are holding around the $70 level for crude. Livestock is at the high end of a two-year long channel, while agricultural commodities continue to grind higher.
Light Sweet Crude, having failed to break above the $80 level, is now testing the $70 level as support.