We are approaching the point on the calendar where the likelihood of a continued decline is diminishing.

We are entering the fifth week of the most volatile six-week period of the year and so far, the volatility has been tame. Yes, we did have a burst of volatility over the last six days but even that has begun to fade.

The key here is the calendar for portfolio managers. The fiscal year end for most equity funds is October 31st. Typically, they sell unwanted positions in September and that produces a market low in early October. Then they used their accumulated cash to buy new positions in stocks that have done well in the biggest window dressing event of the year.

This is why October is called the bear killer month. Even though second half lows are often set in early October the month normally finishes positive after a big rebound.

September is almost over and the volatility has been minimal. The only week of declines pushed the Dow down -3% from its highs and the other indexes only declined -1% to -2%. That is hardly the makings of a new second half low. Portfolio managers are not stupid even though 77% of them are underperforming their benchmarks in 2016. They see that the market is not going down. They know in order to improve their performance they need to buy as much momentum as they can afford. The sooner they buy it the better if the market is not going lower.

The Fed announcement and the BoJ announcement on Wednesday is the hurdle for the week. Managers may refrain from putting a lot of cash to work until after those two events. If the Fed passes on a rate increase as expected, we could see the normal October rally pulled forward into the end of September.

There are a lot of things that could get in the way of that happening but today the Fed statement is the only one that matters. The rest pale in comparison.

The S&P fell out of its 6-week consolidation range and is now stuck with 2,150 now resistance after being support for six weeks. Support is now 2,120 followed by 2,100. Assuming the Fed does not muddy the picture, that 2,100 level should hold.

The Dow continues to be the weakest index but support at 18,000 has held for the last week. The actual Dow trend is bearish compared to the other indexes but as long as that support holds we should be ok. Every dip to 18,000 was immediately bought but they could not return to what is now resistance at 18,350. The big cap stocks in the Dow are being weighed down by the global outlook and the potential for the ECB and BoJ to pull back on the stimulus lever. If the market has an Achilles Heel next week, it would be the Dow.

The Nasdaq 100 is only 13 points from a new high thanks to Apple and all of the company's chip suppliers. The surprise revelation that the initial iPhone 7 had been sold out caused a 14% spike in Apple and added a significant number of points to the Dow and the Nasdaq. The various chip makers including SWKS, QRVO, AVGO, NXPI and QCOM all spiked significantly and added to Apple's support of the indexes.

The problem we face next week is that is now old news. If those companies do not continue making daily gains, traders will begin taking profits. What goes up can also go down.

The economic calendar is heavily weighted to those Wednesday events. The flurry of reports on Thursday are not normally market movers.

S&P futures are up +6 as I type this and apparently, the bombings in New York are not going to impact the market for Monday. There is a lot of darkness left before morning so anything is possible.

At this point on the calendar I would start edging into stocks you want to own for the normal Q4 rally. I would not buy full positions but watch the charts carefully. If your stocks begin to move higher even in a flat market, I would be starting to build positions.

We may be close to the point on the calendar where the market quits going down BUT we are not there yet. There are still 2 and maybe 3 weeks before portfolio managers will really feel the path ahead is clear and they begin buying in volume.

Don't forget the election cycle is another point of uncertainty and the first presidential debate next week could be an inflection point depending on their individual performance. A clear winner could impact the market significantly.

Jim Brown

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