Will the Stock Market be Lower in October?
The stock market often closes a week in the middle of a "perceived primary-trend range." SPX closed at about 1,234 Fri, which is between a multi-year Fibonacci level at 1,253 (i.e. 38.2% retracement level from the peak in 2000 to the trough in 2002) and the 20 day MA at 1,212 (which was general support over a recent rally).
It's possible, SPX can rally to 1,253 short-term. However, longer-term (perhaps in Aug and Sep), SPX seems destined to fall sharply. A Goldilocks economy (of neither too hot nor too cold) is priced-into the stock market, and if any future economic data show either output growth has slowed more than expected or inflation has risen more than expected, then massive selling may take place.
There are several intermediate-term technical indicators that make me cautious. VIX (S&P 500 Volatility Index) shows an extreme level of complacency. VIX fell below 10 last week, to a 12-year low. Consequently, the SPX to VIX ratio hit an all-time high last week. Moreover, both the Transport and Utility Indices to VIX ratios have rocketed at parabolic rates recently, to over 50% beyond previous year's highs. Also, a ratio of large cap to small cap stocks (e.g. S&P 100 to Russell 2,000) is near a multi-decade low, which indicates big institutions, who tend to buy large cap stocks, are not convinced of the rally. Moreover, the SPX to U.S. Dollar ratio is near a historically high level. There's typically an inverse relationship between the U.S. stock market and the U.S. dollar, because a weaker dollar spurs export growth, which is normally bullish for the stock market. The high ratio indicates it's more likely the stock market will fall, since the dollar depreciation has stabilized for over six months, at far lower levels than a few years ago, and then risen somewhat recently.
SPX has open gaps at 1,221, 1,174, 1,143, and 1,138. Nasdaq also has several open gaps, including one at 1,905, which is currently 275 points lower. The stock market has been a market of deep rises and deep falls. For example, just over the past 13 months, Nasdaq fell 305 points (in two months), then rose 440 points (in four months), then fell 300 points (in four months), and then rose 300 points (in three months). Moreover, VXN (a Nasdaq volatility index) rose only six to nine points over the two deep falls, and declined from 28 to 12 (an all-time low), over the past 13 months, which made it a particularly unforgiving short-term trading market.
Economic reports next week are: Mon: Existing Home Sales, Tue: Consumer Confidence, Wed: Durable Goods Orders, New Home Sales, and Fed's Beige Book, Thu: Unemployment Claims, Fri: GDP and GDP Price Deflator, Employment Cost Index, Michigan Consumer Sentiment, and Chicago PMI.
Notable earnings next week include:
Mon: AXP TXN XRX PBI CEGE CD
Tue: AMZN DD SEBL WWY BIIB IMCL X N VLO LMT BDK GLW SUNW SE SWY MDG RFMD MCHP SSTI NANX
Wed: BA AHC COP CSX CL SBUX K KMG MSO NEM CHIR OSIP CRA FON HMC HCA
Thu: BMY GSK ELN GP XOM APA KLAC SYMC XMSR WMI BR RTN AET PD AU ABX KGC PAAS ZEUS GR WEN JNS DCX
Fri: CHV BHI AEP ADM BWNG
Large caps may outperform small caps over the next few months, i.e. small caps may fall greater than large caps. So, IWM (Russell 2000) and SPX (S&P 500) puts may be better than QQQQ (Nasdaq 100) and OEX (S&P 100) puts. With volatility levels at all-time or multi-decade lows, the steep decline in volatility, since the cyclical bull market began in Oct 2002, may shift into an uptrend. So, market conditions may improve for short-term traders, including daytraders.
Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.
Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
Protect Your 401K
Checked your 401K lately? Going back to about a year ago many of these retirement accounts have shrunk by 30%, some even more. What Happened?You have been putting money in for years and your employer may have been contributing to your plan also.
Stuff
I continually hear from economists, talking heads, other market letter writers, analysts and assorted "experts" that I need to know all kinds of "stuff" about the stocks and mutual funds I am going to buy and I should keep up with them on a regular basis.What is this important "stuff"?Let's see.
Why Investors Use Financial Planners
Do you have a financial planner? Does one of your friends have a financial planner? Maybe you take your advice from your broker. As I have said countless times before a broker will make you broker.
The Next Bull Market
We are already in it, but you can't see it. It doesn't look like the one we had in '99.
Index Fund Trading Using Technical Analysis and Swing Trading Strategies
Index Fund Trading can be one of the most profitable..
Paddle Your Canoe
At some time in your life you have been on a river in a canoe and hopefully you had a paddle. You know about being up the creek without one.
Pension Plans
If you have a pension plan at work you will want to read this and if you don't you will still want to because it affects your retirement account.There are two kinds of formal retirement plans that are set in place by employers.
Trading For A Living
How many times have you said to yourself, "I'd like to quit this job and just make a living trading in the stock market"? Well, maybe you can, BUT..
Stock Market Education; Day Trading for Beginnners; How to Pick Stocks
The trading method you employ to approach the stock market can make a big difference in your results.Stock trading is a very competitive field and in order to succeed you need to FOCUS on a set of simple strategies that you can implement without hesitation.
Prospering with Mutual Funds: How Anyone can "Afford" an Investment Advisor
Recently I was invited to appear on a live CNNfn television show to discuss my article "How to evaluate Load vs. No Load Mutual Funds.
Invest In The Stock Market For The RIGHT Reason, Using The RIGHT Choices
Invest in the stock market for the RIGHT reason, using the RIGHT choices!Investing in the stock market is not purchasing a stock at 25 dollars a share, hoping it will go to 35 so you can sell it, then hoping it will drop back to 25 so you can buy it back, so that you can sell it again at 35, and so on and so forth.In my opinion, that is gambling.
Hot Stock Investing ... How to Pick Hot Stocks with Momentum Stock Trading
Profitable day traders recognize that momentum trading is among the fastest & most effective ways to harvest BIG piles of cash in the stock market.The problem is that if you don't know what stocks to look for and how to approach them while limiting your risk, you won't even get close to making some profits.
Patterns
The Law of Chaos is the theory of random unpredictable action applied to the cosmos, mathematics, mechanics, almost everything. Those who believe it will definitely think the stock market is in chaotic state at this time.
Buying Stocks and the Importance of Correct Timing
An investor can find and research the best stock on the market, one with huge potential but if the general market indices are negative, it will most likely be the wrong time to buy. A stock with tremendous accelerating earnings, rising sales, an up-trending chart pattern and a strong industry group may sound excellent to buy but will mean absolutely nothing if the market is positioned to move in the opposite direction of your expectations.
Financial Crime
Congress recently passed another new law that is supposed to outlaw financial crime. Corporate officers will be sent to jail for "cooking the books" as it is called.
Who Knows?
The Shadow knows. Remember him? It seems a shadow has a firm grip on this stock market.
How To Be A Winner
Everyone who invests in the stock market wants to be a winner. Each person's definition of a winner will be somewhat different, but there is hardly one who isn't looking for that stock that will double in price within one year.
Traders, Defend Against the Dreaded Death Spiral.
It has often been said that there is only two ways to get hurt really bad on a stock trade, getting caught in a "death spiral" by not using DTM: Decisive Trade Management in the way of stop loses and having a stock halted on you. Halts you have zero control over.
A Triple Dipper: How to Make 3 Profits on 1 Stock Trade
This is a rather simple strategy with which I am sure a lot of seasoned traders are very familiar, possibly under some other name with which I am not familiar. I wanted to write about it because I don't see anyone talking about it anymore.
NASDAQ 800?
In November of 2000 when the NASDAQ was trading at 3000 I wrote in this column that the NASDAQ Index would fall to 1500 and I got lots of heat for saying it. Microsoft had fallen from $129 to $60 per share.