The market typically rallies in the last two weeks of October. There is a good chance this year we could see that rally pulled forward in the month.
The market survived the September Fed meeting, the first presidential debate and the potential meltdown of the banking system in Europe. While I do not see another hurdle in our immediate future, it is the ones we do not see that end up causing trouble.
The market typically makes the lows for the second half of the year in the first two weeks of October. After two months of refusing to dip below support, I don't see that happening either.
I could be totally wrong but it looks like the markets are setting up for an early October rally. I know that goes against conventional wisdom but October 2015 saw a monster +245 point S&P gain from the September 29th low of 1,871 to the November 3rd high of 2,116.
However, in order to get that kind of rally it came after an equally large decline in August and a double bottom on September 29th. We have not seen anything similar this year so there will be plenty of skeptics on any early October move.
The S&P today is recovering from the -62 point drop over two days starting on September 9th. We have a pattern of higher lows but resistance at 2,175 has been firm. It is entirely possible we could get an early October dip back to that 2,120 level to clear the weak holders and give portfolio managers greater confidence about going all in for their October 31st fiscal year end.
We saw some window dressing on Friday as the quarter came to a close but the real window dressing is for the fiscal year end. Starting this week portfolio managers for managed equity funds will be free to dump their remaining unwanted positions and begin dressing up the portfolios for the end of October.
The Dow chart is less bullish with the pattern over the last three weeks very choppy and containing less of a directional hint than the S&P. Resistance between 18300-18400 is strong but that does not mean it can't be broken. Support at 18,000 is equally strong and should contain any unexpected volatility.
The Nasdaq 100 is our best hope for a market-moving breakout. If the Nasdaq can breakout to another new high over 4,891 and hold it, the rest of the indexes should follow along. However, uptrend resistance is 4,925. A break through that level could really build a fire under the market.
We ahve a busy calendar next week and the payroll reports will get all the attention. If the reports come in as expected there will be no drama. The Fed is set to hike rates in December and without a blowout payroll number that plan will remain intact.
The vice presidential debate is a snoozer. Some voters will watch it but without Trump and Clinton it will be mostly policy and very few zingers, although I am sure they will try to slip some through.
The next presidential debate is next Sunday night and you can bet Trump will be breathing fire after losing the first debate. Depending on how successful he is we could see some volatility in the market on Monday. The markets want Clinton to win to retain the status quo. If Trump wins convincingly on Sunday it could cause some reallocation of portfolios.
S&P futures are up +2.75 as I type this and the Asian markets are moderately positive. There are new charges against Deutsche Bank this weekend from Germany's Deputy Chancellor. He attacked the bank for trading on speculation and putting capital at risk. DB is still negotiating with the Justice Dept and no settlement has been announced.
I would continue to add stocks to your shopping list with entry points at various support points below the current level. While I do not expect a material decline, we can always be surprised by the random headline.
Send Jim an email