Today is Monday October 19th and the bulls took over with a very nice rally today.
In my last post, I said the S&P needed to stay above where it was and only had a few points of room before a little pull back was going to be initiated. The future’s market pulled down to that level in the after market and it suddenly blasted off. I guess the traders saw that same support area I was looking at and decided it was a good area to buy off of and they did. They Dow closed up 96 points and the S&P up over 10 points.
It looks like the top of the channel has a little more room in it before it meets up to the overhead resistance present by the rising long term wedge formation. The last few days gave it a little more room to move up. We are getting closer to that 50% mark for both the Dow and S&P. Once we get to those numbers, something is going to happen, that is for sure. I know that there are a lot of traders watching those numbers and I would bet they will be looking for an excuse to lighten up. Even if the uptrend stays intact, the volatility is going to pick up.
The month of October has traditionally been the worst trading month of the year by all historical standards. So far, we are getting through it OK. There are 9 trading days left in the month, lets hope we can get into November without any major damage. As a trader, it does not really matter, but for the investment community, I am sure they feel the way I do.
Below, I have a chart for you to look at. This is a monthly chart of the S&P. I believe the March bottom was an immediate reaction to a natural retracement level of 62%, a Fibonacci number. From the lows of 1982/83 to the highs of October 2007, a 25 year bull run, the market pulled down to a natural support zone and bounced straight up and has not looked back. This bounce has created in my opinion a sort of V bottom. By rushing the bottoming process, to me sets the stage for a pull back to the middle of its range, somewhere near 900 area. It is still to soon to make that call since the market is still climbing, but once this rally objective has been reached, traders will be looking for a whole new set of objectives.
Earnings season has started and usually last about 4 weeks. We are only into it the first week. I really don’t pay much attention to these numbers as they are all built into the price. Reading price action tells all. So far so good. I wonder if there are going to be any surprises though, let us just hope it is not the scary kind, if at all.
http://www.screencast.com/t/IIjKrI2VKRos Monthly S&P 500 cash chart
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