Octobers have seen some of the biggest market declines over the years, with memorable crashes in 1929, 1987, 1997, not forgetting the October carnage of 1978 and 1979, and of course more recently October last year. Couple that to market chatter about the need for a market correction and the month ahead looks daunting. However, given the marketís tendency to upset the majority and dispel market myths, October 2009 may not prove to be so severe after all.
Mid September certainly saw some commotion, with fireworks on our weekly climax data series. The stats showed the most buying climaxes since 2007 and we present that graph as the ďChart of MonthĒ. That activity may have just been investor jitters ahead of October and whether thatís the case will become clearer over the next few weeks.
In this monthís report we analyze the UKís FTSE Index and also Gold, as it spurs investor interest with a breakout. We conclude with the cliffhanging chart of the NYSE Bullish %, a breadth indicator that called the multi-month consolidation following the 2002/03 bottom.
The third week of September saw 381 weekly buying climaxes on our stock universe. The final week saw 217. Buying climaxes occur when a stock makes a new 12-month high, but closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones.
The buying climax counts for those weeks in September were the highest for the year.
The high counts indicate that markets are getting ahead of themselves. The spectacular figures though are not an immediate sell signal but they do suggest investors should trade cautiously in the weeks ahead.
The UKís FTSE 100 (UKX) has retraced 50% of the bear market decline but the rally does not yet look technically complete. The index has the potential to rally a further 10% from the end of Septemberís levels.
A cluster of technical targets exist around the 5500 level. A Fibonacci 61.8% retracement of the bear market stands at 5496.03. The target from an inverse head-and-shoulders pinpoints 5500, as does resistance from a downtrend line drawn between the October 2007 and May 2008 highs.
The convergence of these three levels creates magnetism, so odds favor at least a visit. However, failure to do so, with a break of 4500, would reveala powerful riptide, with the bearish forces that dragged the index down into the March nadir still very much are still in force.
London Spot Gold (GOLDS) broke out to new twelve month plus highs in September; creating a lot of excitement from the gold bugs. Despite the move, the precious metal performance relative to the S&P 500 has been poor. The relative trend has been down since March and Septemberís breakout caused just a crease to this downtrend.
Unless Gold can muster a break above the March 2008 high (1032.7) soon, then traders should position themselves for lackluster sideways trading. Longer-term, a range between $700 and $1000 could evolve, presenting some elementary range trading opportunities.
Commodities are covered daily in the Daily Commodity Hotline, with analysis fromCornelia Dichio in the UK. Commodity ETFs from the US market are covered each week in the ETF Review by Tarquin Coe.
We know that some of subscribers rarely visit the website at www.investorsintelligence.com, relying on the daily emails for views and developments on the markets.
If you do not use the website - I would encourage you to take the time to give it a "test drive". There are multiple features on the system, including:
a flexible charting engine - P&F, candlestick and more
great sectors and index breadth tools
the ability to rank stocks within sectors or indices by performance and "technical strength"
customizable watch lists and portfolio
This last feature enables users to "flag" individual stock for specific price moves and technical formations. To set up an alert, simply select your stock on the website (we have chosen Microsoft (MSFT) in this example and click the [Set Alerts!] button on the top right hand side.Users can then set up a price-based alert which notifies them at the end of day by email when the stock trades above or below a certain level. Alternatively, select the signal filters to be notified of technical developments such as P&F breaks, KDRs and other signals).
Investors Intelligence Proprietary Indicators Ė the NYSE Bullish %
Point and Figure charts have been a staple of analysis at Investors Intelligence since the 1950ís. Veterans Mike Burke and John Gray have amassed 76 years experience between them of P&F chart reading. P&F analysis is presented daily in the US Hotlines. One of the many indicators covered daily in those hotlines is the NYSE Bullish %.
The NYSE Bullish %, was pioneered by Investors Intelligence in 1955, and measures the percentage of point & figure bull trends amongst NYSE constituents. We have similar bullish % for all major indexes and industry groups.
The final two weeks of September saw the NYSE Bullish % chart hit new highs, exceeding even the readings following the 2003 bottom in January 2004.
If history is anything to go by, a sideways consolidation lasting up to six months is due any time soon. The market consolidation following the 2002/2003 lows took place from March through to August 2004. A leading indication of that consolidation came when the NYSE Bullish % reversed on its P&F chart by hitting 76 and printing a three box reversal. Following that signal breadth unwound to 50% before the uptrend reasserted in mid August 2004, a correction that erased almost 10% off the S&P 500 at its widest point.
The first two trading days of October saw the NYSE Bullish % shimmy backwards and we brought the elevating situation to the attention of readers of the Coe Report on lunchtime of October the 2nd. At the close that day, the chart stood at 77.1%, just 1.1% away from that critical three box reversal. Will the chart recover or provide that all important breadth sell signal? Time will tell, but one thing for certain is that the answer will first appear, with analysis, in the Coe Report. Subscriptions now available on a monthly basis for just $35, click HERE for further details.
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