We stumbled through the first week of October without a material decline. The indexes saw a lot of intraday volatility with triple digit moves on the Dow but when the smoke cleared there were only minimal gains and losses. The 18,250 price magnet on the Dow has been working overtime.
The S&P continues to trade in a narrow range between 2144-2164. The 2,140 level has been support since Sept 19th and the intraday lows have been steadily edging higher to 2,144. The 2,164 level has been resistance for a week after four attempts to push through 2,170 that all failed. The 75-day average is also support after being absent for a long time. It may be just coincidence.
On the Dow the 100-day average suddenly appeared as support, currently at 18,166. There is a pattern of lower highs and higher lows so something is going to happen in the near future. There will be a breakout or breakdown any day now. Several of the big banks report on Friday and that could help or hurt the Dow. Multiple Dow components report the following week.
The Dow is consolidating like it die in August but the intraday volatility is significantly more pronounced. Every day is a triple digit intraday move but by the close the volatility fades and both sides fight to a draw.
The Nasdaq Composite appears to be trying to break out again but it just cannot get over that resistance at 5,320. On the Nasdaq the candles are getting shorter, which is a clue to an impending move and it is likely to be to the upside.
The Nasdaq 100 ($NDX) is very close to a breakout to a new high. The big caps have held up better than the broader market and w could have a new high on the NDX at any time. That could energize the market and cause short covering in the other indexes.
The most bearish pattern is the Russell 2000. The lower highs are very apparent and Friday's intraday dip under 1,235 was technically a break of support but there was a minor rebound at the close. A decline and close under 1,235 targets a drop to 1,205. With the Russell the sentiment indicator for the market, a support break could cause ripples.
Another potential weight on the market could be oil prices. Crude rallied to just over $50 last week on the OPEC headlines and unexpected declines in inventories. With the dollar rising the price of oil will eventually weaken. The $50 level is not likely to hold until OPEC actually makes some cuts and that would be Nov 30th or later, if they actually follow through with their comments.
The biggest hurdle on the calendar is the Sunday night debate. The market does not like uncertainty. If Clinton comes out of this debate a clear winner, the market should move higher. If Trump wins this debate, even in spite of the recent comments, it could throw the market into turmoil.
The FOMC minutes are the next most important because they will determine the market view on a potential November rate hike. If the minutes suggest no hike until December, the market should move higher.
The S&P futures opened up +6.50 on Sunday night and have faded to +4.50 an hour before the start of the debate. You will be able to tell who won by watching the futures overnight.
The first two weeks of October are typically negative. The last two weeks are typically positive. That means the coming week could be rocky and the debate could accentuate that volatility.
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.
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