Market direction for September surprised analysts and many investors alike. October could bring some surprises in market direction as well, but let’s hope not to the downside. By and large October has a terrible record. There were market crashes in October in the years 1929, 1987, 1997 when the market fell an astounding 554 points and the list goes on. 1978, 1979, 1989 and of course the collapse in October 2008.
Yet if Septembers have been bad, Octobers were invariably good, however during Presidential election years both the Dow and the S&P have not done well. Finally we can take some comfort in knowing that October also marked a turning point in stocks in the years 1946, 1957, 1960, 1962, 1966, 1974, 1987 (after the crash – interesting isn’t it), 1990, 1998, 2001 and 2002. Basically this meant that even if October was terrible for stocks in the above years the markets began an advance in market direction that often recovered the losses later in the following year.
October then has a lot of baggage to carry around. Let’s keep our fingers crossed.
Market Direction Technical Indicators
To start off the month of October let’s review the technical indicators from the last trading day of September. Remember, historically if September has been good, October has not followed through.
The market timing indicators at the close of Friday are in agreement that October is going to open poorly.
Momentum is solidly bearish.
MACD Histogram, one of the more reliable market timing indicators continued to be more negative each day last week and on Friday closed with a negative 2.79. The histogram is decidedly negative despite the whipsaw back and forth on Friday.
The Ultimate Oscillator is negative and not oversold so there is room for the S&P to fall.
Rate of Change is continuing negative.
The Slow Stochastic was unimpressed by Friday’s afternoon attempt to recover from the opening plunge. It is still solidly negative.
The Fast Stochastic is downright bearish. The slow stochastic is saying the mid-week will still be weak and the fast stochastic is saying Monday or Tuesday or both, will be weak.
Market Direction Prediction by the S&P 500 Chart
The S&P 500 chart is not nearly as bearish or negative as the market timing technical indicators.So far despite all the media hype, the S&P 500 is down just 2.3% from its most recent high. The pattern of higher lows remains still in place but if the S&P falls below 1425 that pattern will have ended. Higher highs and higher lows is a significant bull patterns. It has been in place since the start of June.
Market Direction Outlook Summary
The key aspect for the first week of October then will be to see if the market timing indicators are correct and the market direction continues lower and breaks the 1425 level. If that happens then the pattern of higher lows will have broken. If the S&P rallies from there and then does not make a new high then the market may be heading into trouble.
Interestingly on Friday Candlestick Chart Analysis gave a “possible buy” signal on the S&P 500. Personally I was surprised how many investors went long on Thursday’s big jump. Many took off their protection in a belief that the market direction is solidly higher. With unemployment numbers on Friday it is tough to say if the market direction this week will provide too many clues as to its October direction but if history is any kind, volatility may increase dramatically in October and provide some excellent investing opportunities.
I will be keeping my cash nice and cozy at the sidelines waiting to see what October brings in the way of market direction. I hope for the market direction to push back higher but earnings must improve to sustain any move to new heights and that could be a problem even if the market direction does push higher than the September 14th high.
Right now I have to remain realistic and with all market timing indicators show negative sentiments it will be difficult to believe that the market direction will push higher at the start of October.