Market Summary
The main indexes booked a fourth straight weekly gain with the majority of gains coming over the Thursday and Friday trading sessions after a surprise interest-rate cut from the People’s Bank of China and a string of better-than-expected earnings from heavyweight tech companies. The S&P 500 gained 2.1% over the week and finally turned positive for the year. The Dow Jones Industrial Average ended the week with a 2.5% gain. The Nasdaq Composite advanced 3% over the week, its strongest weekly advance since July. The small cap Russell 2000 index was actually flat for the week. Year-to-date, the S&P 500 index is now up .8%, the Dow is down 1%, and while the Nasdaq up 6.3%.
A standard chart that we use to help confirm the overall
market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend. Last week we observed, “…the recent market uptrend is converting into a flat trading range…analysis suggesting a relatively narrow, trading range…” The updated chart below highlights the top of the current trading range. It appears the MTUM is setting up to break out of the range into a new uptrend.
As reported by Mark Hulbert in MarketWatch, they anticipate
that the Halloween Indicator will be especially kind to the stock market for
the end of the year. The Halloween Indicator already carries decent odds of
success. But since the stock market is on the uptrend heading into Halloween, including
another 200+ point rally in the Dow Jones Industrial Average this past week,
the odds become even better. The Halloween Indicator refers to the stock
market’s seasonal tendency to produce its best returns between Halloween and
May Day (the so-called “winter” months). This indicator is also known as “Sell
in May and Go Away,” since those who mechanically follow it invests in to cash
during the “summer” months (from May Day until the subsequent Halloween).
Notice from the chart below that the Indicator worked like a charm over the
last year. Over the seasonally favorable six-month period that began on
Halloween 2014, the Dow gained 2.6% versus a loss of 2.6% in the unfavorable
summer months that began last May Day. In fact, this tendency has been stronger
over the last 15 years than it was before. These impressive statistical odds
become even better when the stock market is able to buck the seasonal odds and
eke out a gain over the September-October period, the last two months of the
seasonally unfavorable summer period. That’s exactly what’s happened this year,
with the Dow currently 5% higher than where it stood at the end of August.
Last week we noted “…this
is the S&P 500’s best October start since 2011 and good enough to be the
eighth best start since 1950. Historically when the first nine trading days of
October produced a gain, full month October finished with a gain 78.5% of the
time…” This analysis is playing out as advertised as this October is on
track for one of the historically best performing months for the stock market.
In the updated graph below, over the past month, 9 of the 10 major S&P
sectors exploded higher. Healthcare remains the only lagging group. We expect
the a bullish trend to continue for the rest year so that continuing to moderately
increase bullish bets makes the most sense to us. Especially as quarterly
earnings season progresses, solid numbers should continue to boost stocks.
Michael Arone, chief investment strategist for State Street Global Advisors’
U.S. intermediary business, said “it is encouraging to see solid earnings
results from tech, consumer discretionary and health-care companies,”
By Gregory Clay
Investment Strategist
Click here to
gregoryclay@theoptionplayer.com
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