There's been an effort to hold the stock market up into the end of the week to close out the month and quarter on a positive note and it's looking like it could happen. The bulls just need to jump over a few resistance levels and new highs will be next.

Today's Market Stats

The stock market continues to hold up and looks as though it might even be able to make new highs into October if it doesn't reverse back down in the coming days. One has to wonder what is generating excitement about the upside when there's so little fundamentally that's supporting the market. And retail traders, which include the bulk of mutual fund managers, have not been participating in the rally this year.

Investors have pulled about $80B out of equity mutual funds and ETFs so far this year and only one month out of the past nine has been net positive. Through mid-September there's been more than a $5B drawdown and there's little wonder why we often hear this is the most-hated rally we've seen.

In addition to domestic outflows the foreigners are also not participating and have pulled out about $67B out of U.S. assets according to the Treasury Department's data on international capital flows. The combination of domestic and international non-participation of course prompts the question "who's doing all the buying?"

I've mentioned many times the support for the stock market is coming largely from corporate stock buybacks, which continues to be relatively strong and certainly stronger than any selling pressure. For the quarter ending this month corporations in total have spent every penny they've made and borrowed another 18% to buy back their stocks. Whether this makes sense, considering the high prices paid and the complete lack of investments, is a question stock holders should be asking. But as long as the buybacks continue and the sellers stay away and stock prices continue to climb (the music keeps playing) the stock holders are happy.

The risk of course is what happens when the music stops. If corporations, whose earnings have been in decline for 6 quarters in a row, cannot continue to spend their declining earnings or borrow more money to spend on buybacks then who will be the buyer? The answer is the government and like Japan, they could decide to support the market, I mean start QE4 to support the economy, and start buying ETFs and other mutual funds. The Fed is not big enough to do it by itself but if the government decides to take individuals' IRA funds and "invest" it for them, that's a lot of money. But any government action would likely be late and in the meantime, when the music stops we'll likely see a sudden collapse in stock prices.

So while I see an end game soon for the stock market I also recognize that there are some more rabbits that could be pulled out of the hat and if you're bearish you must recognize that the unsupported stock market (unsupported by fundamentals) could rally a lot longer than anyone thinks is possible. We could even get a blow-off rally to SPX 2300 before it's all done. But if you're a bull and enjoying this ride, keep an eye open and your ear on the track so you have advanced warning when the southbound train is headed your way.

Oil got a big boost today, thanks to an "agreement" from OPEC, and since the stock market has been reacting to the oil market lately it came as no surprise to see the stock market rally as well. Oil had spiked down in the early-morning hours and hit a low at 44.35 before rocketing back up to a new high above those since last Thursday. The stock market is following in form but has not yet followed oil to a new high above last Thursday's. Perhaps oil is telling us it's going to happen.


Dow Industrials, INDU, Weekly chart

The Dow's weekly chart shows the 3 little white candles since the low on September 12th, which was a test of its uptrend line from February-June. Other than a spike below the uptrend line on Monday it continues to hold the line, currently near 18250. The bullish pattern, for at least one more leg up, is a rising wedge pattern for the rally off the February low. Currently I'm showing a depiction to slightly above 19K, about another +5.5%. But the bounce off the September 12th low could be just a correction to the decline from August and a drop back below 17992 would indicate a top is already in place.


Dow Industrials, INDU, Daily chart

The rally off Tuesday morning's low has now made it back up to resistance at its broken uptrend line from August 2 - September 1, near 18340, and its May 2015 high at 18351. It came within a point of 18351 and then pulled back to 18339 so resistance is being recognized. Now the bulls need a gap over resistance while the bears need to see a bearish kiss goodbye following the back-test. If we do see more rally on Thursday, watch carefully to see if the downtrend line from August and its 50-dma, both near 18410, block any further upside progress. A drop below Tuesday morning's low at 18052 would be the first signal that the bounce correction finished and new lows are coming.

Key Levels for DOW:
- bullish above 18,351
- bearish below 18,052


S&P 500, SPX, Daily chart

SPX was able to close above its 50-dma today, near 2169, thanks to an end-of-day rally, but if it doesn't hold on Thursday we'd have a head-fake break that could lead to a stronger decline. If the rally continues we'll likely see the September 9th gap closed, at 2181.30, and the downtrend line from August tested, near 2182. Above 2183 would be a strong indication that new highs are coming and at a minimum we should then look for the 2250 area and the top of its rising wedge pattern for the rally from February.

Key Levels for SPX:
- bullish above 2181
- bearish below 2119


S&P 500, SPX, 60-min chart

On the 60-min chart I show a price projection at 2174.30, which is where the bounce off Tuesday morning's low would achieve two equal legs up for a possible a-b-c correction before heading back down. A drop below this morning's low near 2151 would indicate another leg down but again, over 2183 would keep me bullish for another couple of weeks.


Nasdaq-100, NDX, Daily chart

Since early August NDX had struggled with resistance at its March 2000 highs at 4816 until more convincingly breaking above it on September 21st. It then popped above the trend line along the highs from July-November 2015, near 4868, for one day before dropping back down to resistance-turned-support at 4816 on Monday. That was used to launch Tuesday's rally (bullish kiss goodbye) but it stopped right at the trend line along the highs. Today it was able to close only marginally above the line but left a hanging man doji at resistance. So it's not a convincing bullish move yet but any further rally should get NDX up to the price projection at 4930, which is a projection for the 5th wave in the move up from June (where it would equal the 1st wave). It would turn more bullish above 4930.

Key Levels for NDX:
- bullish above 4931
- bearish below 4772


Russell-2000, RUT, Daily chart

A rising wedge pattern for the RUT supports the idea for another rally leg to complete the 5th wave. Based on a couple of different price projections for its move up from February there is upside potential to almost 1300 for the RUT and that could be reached by mid-October. I've been looking for a mid-October turn window, thinking it would mark a low, but now it's looking like it might mark a high. This also helps those who would like to see the market hold up as a way to help the incumbent party stay in power. But if the sellers return and the RUT drops below the September 21st low near 1228 it would be a confirmed break of the uptrend line form June-September, currently near 1235.

Key Levels for RUT:
- bullish above 1264
- bearish below 1228


20+ Year Treasury ETF, TLT, Daily chart

Based on an a-b-c pullback pattern from July into the September low for TLT, I was looking for the start of another rally leg and it's looking like it should continue. But first it will have to deal with its downtrend line from July, which it nearly tagged with today's high at 139.15 and where the downtrend line will be tomorrow. There's a good possibility for at least a pullback and then we'd get to see if it will be a corrective pullback or something more bearish. Until I see evidence that suggests otherwise, I'm looking for a higher rally for bonds (lower for yields).


Transportation Index, TRAN, Daily chart

The TRAN is acting bullishly by climbing again above its downtrend line from August-November 2015, like it did on September 7th. But this time, the rally above the downtrend line on September 22nd was followed by a pullback to the line and then a bounce off it, giving us a back-test and bullish kiss goodbye. Now all the bulls need to do is rally above the September 8th high near 8084 to confirm this is bullish and not just a bounce correction.


U.S. Dollar contract, DX, Daily chart

The US$ hasn't been acting very bullish but it also refuses to break down. It's coiling and holding its uptrend line from May, currently near 94.90, and as long as it holds above its uptrend line it will remain bullish. I show a price projection at 92.73, which is where a pullback from July would achieve two equal legs down so that's the downside objective if the dollar breaks down. But a break above its downtrend line from December 2015, currently near 96.70, would confirm the next rally leg to the 100 area.


Gold continuous contract, GC, Daily chart

Gold remains inside a descending triangle pattern since its July high. This is a bullish consolidation pattern and the next rally leg could reach as high as 1480. A rally above the top of the triangle, near 1345, would the first bullish sign and then above the August 2nd high near 1374 would confirm the next rally leg for gold has started. But the March 2014 high at 1393 and the downtrend line from September 2011 - October 2012, nearing 1400, would be levels to climb above. A breakdown below 1305 would leave a failed bullish pattern and that would likely be followed by a strong selloff.


Oil continuous contract, CL, Daily chart

As mentioned earlier, oil rallied off this morning's low and put in a solid day for oil bulls. The reason for the rally was attributed to an announcement by OPEC that it has reached a deal to limit oil production. It was announced that details would not be released until their official meeting in Vienna on November 30th. Uh huh, and at the same meeting we're going to hear an announcement that the tooth fairy is actually real. As one blogger put it, "I think the "agreement" constitutes the Saudis buying USO, then leaking fake info about a possible agreement, sell USO, buy SCO then leak information about how there won't be an output cap. Rinse repeat..." We've seen a repeated effort to boost the prices of oil with these "announcements" so it's hard to believe this one is any different. But the chart does support the idea for higher prices if it can get above 47.75.

Oil rallied 2.81 from this morning's low at 44.35 to 47.16, a +6% move, this afternoon into the 14:30 close of the RTH session. It continued to push a little higher to 47.47 but it was unable to break above its September 8th high at 47.75 (that could change if the overnight rally continues), which is the 3rd lower high since June 8th. The downtrend line from June 8th is currently near 47.16, which is where the rally stopped in the RTH session. The brief poke higher in the after-hours session made it above the downtrend line (twice) but was unable to hold above the line (as of 19:00 EDT).

I show an expectation for a continuation lower but if price gets above 47.75 it would be more bullish, especially if it gets back above the October 2015 high near 51 (and stays above that level since it could be a setup for a double top).


Economic reports

Thursday morning's economic reports include the 3rd estimate for GDP, which are not expected to change, the unemployment claims data and Pending Home Sales, which are expected to decline. We shouldn't see much of a market reaction unless something really surprises the market.


Conclusion

With the market's recovery off the mid-September low it's looking like we could see a press higher into Friday to complete the end of the week/month/quarter on a high note. I also see the potential for the rally to continue to new highs into mid-October, potentially meeting a turn window at that time. The flip side of that expectation is a strong decline into mid-October as the bounce efforts fail to hold. The declines have looked more impulsive than the rallies and that leaves a potentially very bearish pattern as long as the indexes do not rally above last Thursday's highs (only 8 points away for SPX, at 2080). If the bears are going to pounce before new highs they'll need to do it on Thursday, otherwise they might be forced back into their caves for a couple more weeks.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying