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Index Wrap

October seasonality looks on track

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The month of October is now 20-days old and for the most part, history seems to be repeating itself.

As noted in the September 23 Index Trader Wrap "Some seasonally bullish trends for sectors approaches," we noted that airlines, internet, cyclical, high-tech, telecomm, NASDAQ-100, banking, forest/paper, gold/silver, semiconductor and broker/dealers tended to kick off some pretty impressive historical winning streaks.

With my QCharts' 20-day percentage change turned on, here's how the first 20-days of trading have unfolded.

U.S. Market Watch - 10/28/04 Close

Ten out of the twelve sectors tracked in our U.S. Market Watch have performed rather well, and there's one trading day left! Airlines have surged 18%, thanks largely in part to Delta's (NYSE:DAL) $5.72 +15.78 % recent jettison from below $3.00.

Only the Amex Gold Bugs ($HUI.X) 228.69 -1.49%, where today's decline just barely erases a month-to-date gain, and the Morgan Stanley Cyclical Index (CYX.X) 686.38 -0.26% currently show a decline for the month.

On an historical basis, the gains in the XAL.X might be a little overdone, where according to the Stock Trader's Almanac, history has the group gaining 16.6% from October-December.

Value players might stick with the cyclicals, where their historical run, which should have started this month, carries through to April and a more methodical 12.8% gain has been found.

The broker/dealers, which have really come to life the past couple of days with a bold break above their longer-term 200-day SMA, their seasonal bullish move has tended to run through January with an 18.2% gain.

My profiled trades in the Semiconductor HOLDRs (AMEX:SMH).... please, please, please sit here until November expiration! The Semiconductor Index (SOX.X) has shown a historical tendency to gain 31.7% from October to April.

Good Gravy! Overstock.com (NASDAQ:OSTK) $56.02 -2.39% and Google (NASDAQ:GOOG) $193.30 +3.94%. What gray hair I had on September 23 has all fallen out.

As I get ready to turn the page on my Stock Trader's Almanac calendar, there's a silly note that NASDAQ Composite (COMPX) 1,975.74 +0.29% and the small-caps of the Russell 2000 Index (RUT.X) 585.63 -0.26% are bullish "sector" seasonality plays. Bar chartists should be looking for bullish MACD crossovers (MACD moving above SIGNAL).

According to the STA, the NASDAQ Composite (COMPX) has shown a historical tendency to gain 10% from November-January, and a 14.9% gain from November-June. The Russell-2000 historically gains 12.9% from November to May.

Please note: The statistics I note above did not include the recent October seasonal trade due to publishing deadlines.

Ahhhhhh.... history shmishtory....

Russell 2000 Index (RUT.X) - Daily Intervals

Hold on a minute! There's a bullish MACD crossover in the daily interval chart, and that's a rather strong one in my opinion as it comes when MACD is trending back near the zero level.

I left the conventional use of retracement on the RUT.X chart (April's 4-year high to recent August low). But for grins, I'm taking a PINK retracement, anchoring it at the September 30 close, and then dragging the 100% higher to what would equate to a 12.9% gain. Then coloring some "zones of resistance" in YELLOW.

You gott'a believe the RUT.X is bullish above the recent relative high. If you're a stochastics trader, and think things are a little "overbought," then maybe some Election Day jitters gives you the pullback entry closer to 570.

Hmmm... I'm not a believer. Are you? Let's put these thoughts to rest. Here's a weekly interval chart. I'll show you.

Russell 2000 Index (RUT.X) - Weekly Interval Chart

Hold on a minute! I was just sure we'd see a BEARISH MACD on the weekly interval chart. Hmmmm.... do you wish you'd a bought some Russell in April of 2003 when the 10-week (50-day SMA) crossed above the 40-week (200-day SMA) as the RUT.X broke above some horizontal resistance at 420? Oooooeeeee! Despite that incredible run, it looks like the RUT.X tacked on roughly 13% from the first weekly bar in November (open 528.22) to an "early" top high near 600 in April.

Gosh... the RUT.X looks positions to at least give a run at history. Doesn't it?

Are market participants trying to pull the wool over a bear's eyes? This pickup in volume in October isn't all that unusual, but maybe bulls are returning in force to play the seasonal bullish trends.

Market Snapshot / Internals - 10/28/04 Close

Early this morning (10:00 AM EDT), the NYSE 10-day NH/NL ratio was reading EXACTLY 70.0%, and that would have been good enough to get the 10-day ratio reversing back higher on its point and figure chart (2% box size, 3-box reversal to 70% needed), but we didn't quite get their by the close, which is what we chart. Maybe tomorrow. If so, then both shorter-term and intermediate- term signs of bullish leadership resume. NASDAQ still needs a 62% 10-day NH/NL ratio to reverse up.

Talk about flat equity trade, look at TRIN. I get the feel that traders were sitting either side (bid/offer) for the bulk of the session,

I posted both of these charts, which I make by hand, in today's Market Monitor at 12:11:20. Did you know that after our IT personnel archive the Market Monitor, you can view it by looking under the "Monitor Archive," then clicking on a date?

Oh! At the very bottom of today's archive, are some things I saw last night regarding a "bullish theme among the brokers," when I was updating the various bullish % changes.

Today's trade just has the look that nobody wanted to do much.

The dip at the open seemed to find bullish buying as oil was weak. But when I look at the 10-year yield ($TNX.X) on a top-of- the-hour reading, that bugger was up 2.4 basis points at 10:00 AM, then it was down 2.9 basis points at 01:00 PM, then it was relatively unchanged by the close. That's a pretty good intra- day swing of 5.3 basis points, where 4.08% finds equilibrium by the close.

Today, I found myself agreeing with one of CNBC's guests. I can't remember his name, but what he said, I found myself agreeing with.

If President Bush wins next Tuesday's election, and there isn't a recount, then the markets are set to roll higher. To me, the market sure feels like it is set up to do so.

Now, we talked awhile back about how a stock market tends to like the current sitting President to win, and even more so when it is a Republican. Now I don't want to get into the Republican / Democrat debate, but it all comes back to some type of "certainty." Everyone knows what we've got, and what President Bush's policies and actions have been. Nobody's quite as certain about Senator Kerry.

If John Kerry were President today, and was running for re- election against George W. Bush, I'd say just the opposite. The MARKET would have more certainty if John Kerry were to win. That's it, that's all I have to say on this subject.

Oh... look for a strong voter turnout, and don't wait until the last minute to vote! My mother and father went to vote early, and they stood in line for an hour here in Colorado. They talked to a lady that was standing next to them and she said she drove by the early voting location in the morning and the line was out the door. She thought she would come back later in afternoon when the line was shorter. When she returned, the line extending around the corner of the building.

Oh... another thing! Don't forget that this weekend is the end of daylight savings time! If you're in a region that observes daylight savings time, the you'll turn your clock back an hour on Saturday.

Laughing... I can almost guarantee you I will have an email in my e-mail box Monday morning where an early bird trader will be wondering where everyone is and why the markets aren't trading.

Now, let's look at the Pivot Matrix for tomorrow. Here's what I'm doing in my mind.

Tomorrow we're going to get the advanced third quarter GDP, where economists are forecasting the economy to have grown at an annual rate of 4.3%.

Did you read the 10/17/04 Ask the Analyst column "An economic update?" At that time, I didn't have economists' current consensus, and I (Jeff Bailey) eyeballed a 3.4% annual growth rate. One of the "factors" that went into that was the HIGHER oil price.

Think about that higher oil price when the GDP data is released.

Maybe there are others that have been thinking about 3.4% growth in the recently completed Q3, and undershot a bit.

Now.... what do YOU think Treasury yields will do if the GDP falls BELOW my 3.4% eyeball approach, or ABOVE economists' 4.3% rate?

Pivot Matrix -

In the DAILY Pivots, we can see that the equity-based indices closed very close to tomorrow's DAILY Pivots, where S1-R1 mark today's highs/lows. Hmmmm... similar to what I noted in today's 10-year yield. Up 2.4 bp, then down 2.9 bp, to finish relatively unchanged.

Tomorrow, I'd have a pretty darned close eye on the benchmark bond's yield. Yes, lets monitor oil prices too, but I think it will take a move BELOW 4.07% (DAILY S2) or ABOVE DAILY R1-MONTHLY PIVOT, to really get a stock market reaction.

What would the MARKET do if despite higher energy prices, the economy grew at.... say 5%? I think the market would sell the 10-year rather sharply, causing its yield to rise, MAYBE to at least 4.157% and DAILY R2 and a minimum.

Think about this in the context of how YIELD and EQUITIES have tended to follow each other in recent weeks.

Now we're seeing some sign of weakness in oil.

Unless we've had our head in the sand, we know that oil has risen substantially since the end of June. From $37.05 to be rather exact.

I will admit that I probably "low balled" my 3.4% forecast, but I tend to lowball things. At least I try to.

The S&P Banks Index (BIX.X) has two pretty good correlations for firm support. Weekly R1/DAILY S1, the WEEKLY Pivot and DAILY S2. I'd think "not overly happy" with GDP if BIX.X go much below DAILY S1, and "rather unhappy" below DAILY S2.

Why? Because of my thoughts in the October 21 Index Trader Wrap titled... "Bulls may be BANKING on tech rally."

Look at the MONTHLY Pivot matrix with one day left in the month. Doesn't the blue levels traded look a bit like a bird, or a jet plane? What is the NDX/QQQ doing up at MONTHLY R2?

A season bullish bias? It's sure looking that way.

Silicon Valley Bancshares (NASDAQ:SIVB) $40.31 +0.22%.

Jeff Bailey

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