Will Markets Sell in September?

My view remains that there will be a downturn in September though there is no confirmation yet in the chart patterns that this downturn has begun. I am not holding short positions yet, but as I buy dips I remain cautious. Eventually the consolidation support will break down and if you expect that a bounce will let you escape a losing position unscathed, you will eventually find yourself panicking and taking a bigger loss than anticipated. So that just means that if you are continuing to buy support in this consolidation range, just know your exit strategy and stick to it.

About Jackson Hole
Bernanke didn't say too much new last Friday in his statement on Monetary Policy, but he did say just enough to maintain the consensus that the Fed can and will act when necessary. Like I said in my last post, this thought process keeps a bid under the markets. Economic conditions aren't terrible, economic reports have been more positive than negative and we all know that if things do take a turn for the worse, the Fed has repeatedly committed to using the "tools in its toolkit" to provide liquidity to the markets. This promotes a consensus that the markets are safe. This meddling with natural market behavior, unfortunately, will make markets less safe in the longer term. In the present though, the Bernanke Put continues to maintain support under the markets. At some point though (as a trader you must be aware of it and prepare yourself), the odor of what may be a cleverly concealed bluff by the Fed, will reveal its pungent smell enough to force traders away from the markets and into fresher smelling pastures. When that happens, you don't want to be long. For now though, I can't argue with playing the "Bernanke Put."

Today we have tested the lower consolidation range support again (mid 1390s on the ES). This is a safe long entry as now we await the Draghi/ECB statement on Monetary Policy that will be released Thursday, September 6th.

Lets see which way the market breaks. One scenario I am considering is shown in the E-mini S&P 500  chart below (ES U September Contract). Watch for a fake-out move above the current consolidation triangle which will be followed by a small correction in the markets.