August Market Recap: From Bearish Beginnings to Bullish Endings

9/1/2024

September is here, that means the much-anticipated rate cuts are likely on the horizon. The big question: will it be a modest 0.25% cut or a more significant 0.50%? As we head into this pivotal moment, I recommend bookmarking the CME FedWatch Tool. It’s going to be your go-to resource as we navigate these rate changes.

What Do Rate Cuts Mean for Us?

Whether we’re heading for a soft landing or a recession, the initial steps often look similar—starting with rate cuts. But what’s the difference? Mr Money Maxwell Inner Circle members have my exact game plan!

In a soft landing, the Federal Reserve lowers interest rates just enough to cool down inflation without stalling economic growth. This scenario allows the economy to continue growing at a slower, more sustainable pace, avoiding a sharp downturn. The stock market tends to react positively because the lower rates reduce borrowing costs for businesses and consumers, supporting continued investment and spending.

However, if those rate cuts turn out to be more aggressive or frequent, it could signal that the economy is in worse shape than expected. This could lead to a recession, where economic activity contracts, unemployment rises, and the stock market takes a hit. In this scenario, the Fed might be cutting rates to stimulate the economy, but the deeper underlying issues could cause a significant downturn.

Many of the subscriptions I follow are hopeful for a soft landing, and this optimism is reflected in the monthly candles I’ve been reviewing, which show a positive outlook. If Fed Chair Jay Powell manages to strike the right balance, it could reinforce confidence in the market and support a smoother economic transition.

Monthly Market Recap: August's Wild Ride

As we head into the holiday weekend and close out the month, it’s the perfect time to review the monthly candles.

Before diving in, let’s run through the quick Mr. Money Maxwell Checklist:

Watchlist Ready: Do you have a curated watchlist of key stocks?
Zoom Out: Have you looked at the bigger picture by reviewing monthly and weekly charts?
Support and Resistance: Have you identified and marked the key support and resistance levels on your watchlist?
Moving Averages: Have you checked the relevant moving averages for each stock?
Favorite Chart Patterns: Do you remember the 7 chart patterns I rely on? Keep them in mind as you analyze.

If you’re serious about taking your trading to the next level, now’s the time to join the inner circle. Get exclusive access to my watchlists, insights, and the specific names I’m tracking closely. Plus, you'll be locked in at the current price before it goes up next month.

SPY: My friends, the S&P 500 gave us a huge hammer candle this month.

The first three days were brutal, with the index gapping down more each day. At one point, we were down almost 8%, and the panic was palpable. But if you zoomed out, the pullback wasn’t as significant as it felt. The bigger story was the spike in the VIX, which we’ll get to in a second. What will September bring? Honestly, no one knows for sure. Just keep in mind that, from a seasonality standpoint, September is historically a bearish month.

It’s crucial we don’t see the index close below this monthly candle. Consider reading my hedge document if you haven’t already.

QQQ:Tech also saw a big hammer.

Also again, tech is normally weak in September.

Notice the higher lows (yes, I drew a purple trend line), which suggest that people are selling their tech stocks and rotating into other sectors. How can we tell? Just take a look at RSP.

RSP:

A really powerful hammer on the equal-weighted S&P 500, which balances out the dominance of the “Magnificent 7.” This broadening market strength is encouraging. If we had seen lower lows here, I’d be much more concerned.

VIX:

The spike in the VIX was August’s headline.

I’ve read countless articles dissecting this spike, with some hypothesizing that there were calculation errors or technical issues. Whatever the reason, the surge in fear was real, leading to margin calls for those over-leveraged. If you were a “good” good kid, you sold some volatility with us on that dreadful Monday when the VIX hit the mid-60s after being stuck under 20 for what felt like forever.

GLD:

What we’re seeing in gold seems to be a rush to safety.

I’m continuing to look for bullish trades in gold and gold miners, as I believe this could be a strong play even if we don’t get a recession. That bearish doji we saw in June? It’s healthy! Remember, it’s not normal for stocks (or commodities) to go straight up every single month.

TLT: Although the upper wick on TLT indicates some selling pressure, we still got a close above the 200-day moving average on the monthly chart. I’m still bullish on TLT, even though some of my swing trades have already hit their targets.

Final Thoughts:

What a crazy month! August started out super bearish and ended on a bullish note. I’ve been super bullish on XLU and mentioned some specific names to the M$M inner circle members:

M$M Trade Ideas:

Inner circle members have 5 trade ideas. If you haven't subscribed hurry as prices go up this month! Join here

Trading vs. Investing: Remember the Timeframe

I want to emphasize the importance of distinguishing between trading and investing—and understanding the timeframe for each.

While headlines might scream about Warren Buffett sitting on piles of cash or predict an impending crash (and let’s be honest, there’s always talk of a crash), it’s essential to remember that not investing is often more risky than having your money in the market.

Checkout this graph I found on Reddit:

This is a recurring theme because it’s vital: an uninvested dollar loses value over time, especially with inflation eroding its purchasing power. The stock market might be volatile in the short term, but over the long term, it’s proven to be the greatest wealth builder in history.

I’ve heard the arguments about the U.S. potentially losing its global edge, the rise of other countries, and the potential of blockchain and crypto. While these are intriguing discussions, the U.S. stock market has a long history of resilience and recovery. Trying to time the market is nearly impossible, so staying invested is key.