Watch for weaker seasonality in September, says BofA By Investing.com

The stock market faces a potential risk of weaker seasonality in September as the historically strong June-to-August period comes to an end, Bank of America pointed out on Monday.

From June to August, as of Aug. 23, the market was up 6.8 percent, compared with average returns of 3.2 percent for all years and 7.3 percent for presidential election years.

Meanwhile, September is noted for having the weakest seasonality of the year, with (SPX) gains only 44% of the time and an average return of -1.20%.

In presidential election years, September and October results are similarly poor, BofA notes, averaging -0.46% and -0.34%, respectively, although “this tends to precede a post-election rally until the end of the year”.

The bank’s technical strategists continue to use the NYSE and NASDAQ composites as key “Dow Theory” indices to gauge the health of the cyclical bull market that began in late 2022.

Both indexes hit higher highs, providing bullish confirmation in early July. However, while the NYSE hit another new high last week, the NASDAQ did not.

“This creates a disconfirmation from early July to late August, just ahead of weaker seasonality for the US equity market,” the strategists wrote.

They also note that bullish exhaustion signals from the daily Demark 9s and 13s indicators on several indices, including the SPX, S&P 500 equal weight (RSP), (NYA), NASDAQ 100 (NDX), (CCMP) and ( INDU), indicates a tactical risk that could reinforce weaker US equity market seasonality in September and October.

“In summary, the signals on the SPX, NDX and NASDAQ are still in place, but they are at risk on the NYA and RSP given new all-time highs for these indices,” the strategists pointed out.

Furthermore, Bank of America is showing signs of upward exhaustion on the August 21-22 Demark daily, aligning with a bearish engulfing pattern on the S&P 500 just below the July peak at 5670.

These signals are strong below the Demark resistance at 5708, but a break of tactical support near 5560 is needed to confirm the bearish pattern. If 5560 holds and the SPX overcomes these bearish signals, it could pave the way for a move towards 6000, strategists said.