October is known as the bear killer month because so mand market declines are reversed in that month. We can chalk up another win for October in two areas. The decline appears to have ended when the S&P fell to 2,603 and 10% correction territory on Monday October 29th. That adds to the historical count of major declines ending in October.

October is also known for setting the market lows for the second half of the year. When we were at 2,940 and a record high on October 3rd I wrote that I did not expect the historical trend for second half market lows to occur this year. Boy was I wrong. In only three weeks the market imploded with the Nasdaq and Russell falling in the 15% range and the S&P hitting 10%.

I really hope those were the second half lows and October historians and put another checkmark next to that trend. I do not want to see any lower lows in over the next two months. Unfortunately, what we want does not matter to the market.

The S&P rebound was not strong despite the 150+ point rebound as of Friday's high. The A/D line improved but the acceleration was muted. More than 70% of S&P stocks are still in correction territory. They are rebounding but investor sentiment is still lacking.

Despite the major decline only 42% of the S&P stocks have buy signals on a point and figure chart. The market has a lot more healing to do before we can call it a rally. This is still just a rebound.

Only 23% of S&P stocks are back over their short-term 50-day average. The low last week was just over 10%. This shows how brutal the sell off actually was and how little the majority of stocks have recovered. The percentage over the long-term 200-day average rose to 44.6% after being as low as 34%. This percentage is stronger than the 50-day because a lot of stocks never fell below their 200-day.

The S&P is facing resistance at the 200-day at 2,764 and then again at 2,800 and 2,816. This next 100 points could be a tough battle.

The Russell rebounded over 4% and moved closer to the Dow, which rose just over 2%. The Russell is normally the leader both up and down and a continued strong rebound in the Russell would be beneficial to the entire market.

The Nasdaq and the Semiconductor Index are moving in lock step. Rarely do we see correlations this tight and this enforces the relationship between the two indexes. The $SOX is the leader for the entire tech sector.

The FANG stocks also completed their move back into correlation and were EXACTLY correlated on the 29th. As you can see by the chart this has not happened in the last six months. Now we just need to see the FANG stocks move higher in unison and the Nasdaq would soar.

As you can imagine the sentiment reversed from bearish to bullish but it is not overriding bullish. The bulls are slightly ahead but the wild swings in the market are keeping many investors on the fence.

If the 72-year trend holds, the two months after the election will be strongly bullish. However, that does not mean we will only go straight up. There is plenty of uncertainty remaining in the market and there will be plenty of sellers at the various recovery points along the way. There is always the chance the trend will fail. In 2018, almost no trends have been followed. Nearly everyone has been busted. While I really hope this trend reappears, there are no guarantees. As your positions rise, please add stop losses just in case "this time it is different."

Enter passively and exit aggressively!

Jim Brown

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