The S&P 500 fell 0.4% Thursday, but ended the month of October with a gain of 4.5%. The monthly gains were despite a 16-day partial government shutdown and expectations that the Fed might taper its bond-purchase plan.
Euro zone unemployment rose to 12.2% in September versus 12% in August and came in well under estimates. On this side of the pond, weekly initial claims fell to 340,000 from 350,000 (consensus was 335,000).
At Thursday’s close, the Dow Jones Industrial Average fell 73 points to 15,545, the S&P 500 dropped 7 points to 1,757, and the Nasdaq lost 11 points at 3,920. The NYSE traded 908 million shares and the Nasdaq crossed 695 million. Decliners exceeded advancers on both exchanges by about 1.55-to-1.
Like many months before, the 17-month moving average chart is still bullish. Reversals that have led to bear markets followed 8.1% and 8.4% premiums to the moving average. With the index now at 14.8% above the moving average, we must conclude that a consolidation is in order.
The first support for the S&P 500 is at the bull channel’s upper line, called the bullish support line. Next is the September high at 1,730, the 20-day moving average at 1,725, and the 50-day moving average at 1,696.
Conclusion: The bull is still running and may continue to do so despite its overextended position. New money arrives at the beginning of every month, and stocks are entering the historically strongest six-month seasonal period. And so the market may turn higher, obliterating Wednesday’s reversal.
But let’s be clear — while long-term stocks are still bullish, and intermediate term the charts are bullish, the near term is in question. The near-term trend is weak because volume increased on Wednesday’s key reversal day and again on Thursday’s decline. Our internal indicators are currently overbought, and margin interest is at an all-time high. The yellow flag is flying, and those who choose to ignore it until the green flag flies again are taking a serious risk. It is time to stand aside, protect current assets and accumulate cash.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.