The first week of the best six weeks of Q4 saw minor gains for all the indexes.
The gains for the week were around half a percent and nothing to excite traders. The Dow was the laggard at +0.04% and the Nasdaq 100 ($NDX) was the leader at +0.9%. However, the major indexes appear to be weakening and critical support levels are coming back into play.
Next week will be the make or break week. This is the annual end of year window dressing week for mutual funds. Because of the uncertainty surrounding the election we may not have a big window dressing event. I have been saying for the last couple weeks that portfolio managers may just throw a lot of cash into the big cap tech stocks and I think that started last week. That and Netflix is why the Nasdaq 100 index was the biggest gainer.
The NDX closed only 42 points below a new high. I would not be surprised to see that high tested again before the week is over. The challenge is the following week. If managers are only reluctantly window dressing then the window undressing could be violent once we get into November. They will want to be neutral when the election occurs so they can jump into sectors that will benefit depending on who wins or jump out of sectors that will do poorly under that specific winner.
Google, Amazon, Amgen and several other big cap tech stocks report earnings this week so there could be some index volatility late in the week.
The Dow is suffering from the earnings volatility. One stock beats and spikes several points while another misses and drops several points. It happened several times last week but fortunately, the gains offset the losses to some extent. The top three Dow stocks on Friday, MCD, MSFT and DIS added 50 points to the down but the index still closed with a loss of -16. Support at 18,100 was broken intraday but recovered in the afternoon. The candles for the week have long wicks and tails because there was a lot of intraday movement but very small gains and losses at the close.
The Dow chart is negative but it is holding over support. Resistance at 18,250 has been solid. There are 12 Dow stocks reporting next week with 7 on Tuesday. That makes Wednesday's open somewhat risky depending on what the afterhours reporters say.
The S&P chart is only slightly better than the Dow chart with the same problems only critical support at 2,120 was not tested last week. Resistance at 2,145-2,150 is solid. There are 178 S&P-500 stocks reporting this week.
The Russell 2000 is also threatening to to break support at 1,210. Fortunately, there is strong support at 1,205 and 1,195 so it is not likely to crash through those levels on the first attempt. They should provide some stability over the next week.
The calendar is lacking any major events until Friday when the Q3 GDP is released. That could be a major hurdle if it comes in much weaker or stronger than expected.
While the indexes appear to be weakening, we are moving into the window dressing week. That could provide some upward momentum on a temporary basis. The week after could be a challenge as that window dressing is removed.
The polls are tightening and there are many reports of stronger Trump showings in early voting than analysts expected. The polls could be wrong. Reportedly, there are a lot of democrats voting for Trump. We could have a major November surprise and at this point on the calendar investors do not know which way to invest. Volume was very low last week with an average of 5.7 billion shares per day. In a thin market, we could see an increase in volatility and wider market swings. That calls for wider stops and fewer positions. I would continue to maintain a list of stocks you would like to buy on a market dip because you never know when one might appear.
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