Stock Market Fighting to Hold October Gains

Monday recap: US Equity Markets saw their largest down day since September 28 as Major Market averages were all lower by 1%.

Investors began the week with the reality check that it will take further work to get through the 6 months of resistance that turned back so many rally attempts in the March through August time frame earlier this year.

With Monday’s sell off most broad market averages are now in a delicate position of being just north of their 200 day moving average and just south of major resistance levels from earlier this spring and summer.

Let’s take a closer look:

The S&P 500, -0.98% at 2078.58 is less than 1% above its 200 day moving average of 2063, and just a hair more than 1% below 2100, where major resistance of 2100 to 2135 comes into play. While the S&P 500 closed above 2100 3 days last week, it closed over the 2100 threshold 50 times!! from mid February to mid August but could never gather enough momentum to turn that resistance into a new base of support.

That’s a tremendous area of resistance that should take heavy volumes for the S&P 500 to trade through and hold convincingly.

Stock Market Fighting to Hold October Gains

NASDAQ -1.01% at 5095.30 has a slightly stronger look technically on the charts.  It’s been above the 5000 level for just over 2 weeks now.  Real resistance is at the 5150 to 5225 level, with 5223.18 being the all time closing high from July 20.

The NASDAQ is 3% above its 200 day moving average of 4948, and with the stellar earnings over the last few weeks from market leaders GOOGL, AAPL, AMZN, MSFT, and even INTC, the NASDAQ will likely remain in a position of relative  strength through the end of the year.

Stock Market Fighting to Hold October Gains

The DJIA, -1% at 17,730 is the weaker of the 3 major market averages with a distinct downward sloping trend line across a number of lower highs going back to May of this year.  The DJIA never quite make it through the 18,000 threshold last week and settled Monday less than 1% above its 200 day moving average at 17,580.

There is clearly major resistance from mid year in the 18,000 to 18,300 range with the all time closing high of 18,312 from May 19 of this year.

Stock Market Fighting to Hold October Gains

Should consensus continue to build that an initial rate hike by the FOMC in December is inevitable,  the DJIA might slip back into a phase of underperformance as the mega cap multinationals in the DJIA could be under some pressure from a stronger US Dollar.

Stock Market Fighting to Hold October Gains

Monday was a wild day for the  DJ Transports, -0.3% at 8215. The last few years the Transports have been a great leading indicator of market strength, and historically a great barometer of cyclical economic activity.

Monday they were down 2% until reports began to circulate that Canadian Pacific, CP was lining up as a potential suitor for Norfolk and Southern, NSC.  As NSC rallied 10 point on the potential takeover chatter, the DJ Transports reversed course and went positive by +0.5% before settling with a marginal decline on the day.

One of the caution signs that kept us from completely buying into the 2nd leg of the rally the last 6 weeks was the inability of the Transports to close above the 8250 level and show a convincing break in the downtrend that began early last spring.  The Transport sit nearly at the midpoint between the 50 day at 8051 (support) and the 200 day at 8436 (resistance) moving averages.

There is some  irony that in yesterday’s wild reversal day the intraday high and low came teasingly close to both moving averages.

The DJ Transports was the first major average to peak, with an all time high of 9217 on December 29, 2014 and the first to break key support, when it failed to hold 8500 in May of this year. The Transports regained their 50 day moving average in early October and have a series of higher lows going back to the August and September market lows.

If the Transports can break out of that wedge to the upside with a convincing move above $8250, the 200 day MA will be well within reach and it could be a positive sign that the broad market averages have a shot to challenge the highs from mid year before the end of 2015.

Stock Market Fighting to Hold October Gains

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