The S&P 500 rallied to new highs early in September after the Federal Reserve statements indicating continued support of the U.S. economy and easy money policies. It appears the markets have fallen back into bullish trending mode, which may continue throughout September and into the end of 2021 through the Christmas rally phase.
Q3:2021 Earnings And The 2021 Christmas Rally Are Pending
Although we can see a new, more moderate, price trend taking place on this S&P 500 ES weekly chart below, we are starting to see a new rally phase setting up as traders push prices higher to close out Q3:2021 in expectation of continued strong earnings.
With the Fed directing the markets and providing a backstop against risk, it would take a broad market panic to change the trend in our opinion. Q1 and Q2 earnings in 2021 were moderately strong with technology and health care showing very strong revenues. This is likely to continue into Q3:2021 and drive traders into long positions ahead of the October Q3:2021 earnings announcements.
Additionally, we are starting to see the volume trail a bit lower on these weekly charts. We do believe certain institutional and retail traders are starting to pull some profits off these lofty levels as a measure of pure greed. After such a strong rally from the COVID-19 lows, anyone who has ridden this rally upward would be foolish not to pull some profits from these high price levels and balance their accounts in preparation for the potential Christmas rally phase.
Mid-Caps Still Struggling To Break Into Bullish Trending
Conversely, the S&P Midcap 400 sector is still attempting to rally towards new all-time highs. Recently, we've seen the mid-cap move in a decidedly bullish price trend after the July 2021 lows. The sideways rotation/consolidation that has taken place recently suggests a momentum base may be setting up. If the mid-caps rally to new highs after basing for the past four months, it is very likely that this sector may see a strong rally into the end of 2021 – possibly lasting into early 2022.
The S&P 400 MidCaps and the Russell 2000 have been consolidating for quite a while. The primary bullish trending has been happening in the NASDAQ Composite, S&P 500 and Dow Jones Industrial Average as traders focus on the large cap and technology/health-care sectors. Real estate and retail have also been moderately strong lately.
If we start to see a rally in the S&P 400 mid-caps, this will present fairly strong confirmation that a broad market rally phase is taking place – which is much different than what we've seen recently. The large-cap rally was, in our opinion, driven by strong earnings capabilities and traders chasing strong trending. Meanwhile, the mid-caps and Russell 2000 traded sideways/downward as it was perceived these sectors didn't have the same upward price capacity as the large cap indexes.
If the mid-cap indexes really start to move higher, while the large cap indexes continue to trend higher throughout the end of 2021, we may be starting a very broad market Christmas rally phase that could be very profitable for traders/investors.
Overall, unless something breaks this trend and global traders continue to pile into the U.S. equities markets seeking opportunities, we may find the mid-caps and Russell 2000 sectors are uniquely positions for a strong 8% to 12%+ rally throughout the end of 2021.