Stock Market Outlook Improves, But Patterns Point To Choppy October

As discussed in Monday’s Market Outlook, the S&P 500 Index rallied up to its falling six-week moving average before hitting resistance in an end-of-month, end-of-quarter move that produced a long lower shadow on its monthly candle. These patterns suggest the month of October may see trading fill in the range of the lower shadow with more of a pullback down to deeper Fibonacci retracement levels.

Multiple oscillating indicators suggest this bullish rally has not been bullish enough to start a new intermediate run for the S&P 500 Index. Instead, it looks more typical of a technical oversold rally with has met multiple layers of resistance at today’s intraday highs.

Volume kicked up at the end of the day but volumes and volatility do not suggest we are expecting any kind of “freefall.” Expect any weakness to be more of the same grinding action lower without a large volatility spike until we approach the end of the intermediate pullback – again, similar to last May.

Most of the damage continues to be primarily in the US markets, specifically in the large-cap tech area. In fact, Emerging Markets have been holding up well. Also, tech leadership remains despite the broad market weakness and you expect after resolves its poor margin of safety will continue to be the leadership going forward.

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Energy, Financials and Industrials – some of the smallest sectors in the S&P 500 – have had the worst performance over the past couple of weeks as tech has been holding up and maintaining its leadership on a broader level while most of the selling is contained in the mega cap space.

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Stock Market Video for Trading Into October 1, 2020

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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.