Looking Back On October…
With ghosts and goblins getting
ready to prowl, here’s the market as I see it…
Positive
Foreign Markets
— I noted last month that foreign markets had begun to outperform the U.S. That
outperformance has continued and many foreign markets are beginning to look
quite healthy. While there has been some pullback in resource rich countries,
the list of foreign markets in good shape continues to grow. A few that are at
or near new highs are Australia, Canada, Italy, Belgium, Austria, Spain, United
Kingdom, Mexico, and South Africa. Continued global strength would be a plus
for the U.S. market.
New Highs vs. New
Lows — Even during the recent pullback, new high
breadth has remained fairly solid. New low breadth continues to lag. This
could change quickly should the recent lows in the S&P 500 be taken out, but for
now, breadth can be seen as a market positive.
Neutral
UUWNHI (Unofficial,
Unscientific, Working/Not working Hanna Indicator)
— Individual stocks, like market itself, remain choppy. Breakouts to both the
long and short side have been hit and miss with little consistent
follow-through. The choppy action has even made playing pullbacks a bit
tricky. Many stocks have been giving more than one head-fake and then still not
going anywhere.
Accumulation/distribution — Price and volume
patterns have been very sporadic. Over the last 2 ½ weeks there have been
multiple accumulation days and distribution days. As has been the case all
year, conviction is lacking. Until a consistent pattern emerges here, all
rallies AND all selloffs should be questioned.
Negative
My shrinking watch
list — I have seen fewer quality new names
completing base formations over the last couple of weeks than I have since the
market bottomed in August. With resource-based stocks taking a sharp hit
recently, new leadership will need to emerge for a strong rally to ensue. The
questions remains, “Where will this leadership come from?â€Â Technology is one
possibility, but it doesn’t appear ready quite yet.
Sentiment
— Of the sentiment indicators I track, most aren’t telling me too much
currently. The one that is closest to moving into extreme territory is the
Investors Intelligence survey with 58.9% bulls and 22.1% bears. While these
numbers won’t necessarily kill a market rally, it is unusual that a strong rally
begins with these kind of readings. I’ll call this one barely negative.
In addition to these technical
indicators some wildcards to watch include: (1) The price of oil — It will be
very difficult for the market to avoid selling off should the price of oil
continue to rise. (2) The Fed — It appears there will be another ¼ point hike
when the Fed meets again on November 10th. Their accompanying
statement may be very important. A softening on their stance of continued hikes
could serve as a positive for the market. (3) The Election — Although I believe
the market would prefer Bush, I’m not sure it will matter a whole lot who wins.Â
What is important is that (a) we get through it without terrorist action and (b)
a winner is promptly declared.Â
The next few days of trading
leading up to the weekend before the election will be interesting. Will prices
get marked up for month end, or will the market sell off because traders are
afraid of bad news before Tuesday? Your guess is as good as mine. Should the
market make it through the next two weeks in good shape, then an end-of-year
rally is not out of the question.
Happy Halloween,
Rob
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