The weekly DJI chart shows a bear market trend with oversold ( ) and near to support levels. Also, as noted in the chart weak hands have not been washed entirely yet, meaning that there could is a further downside risk. This applies to similar indexes like S&P and Nasdaq.
Hisotrically, when weak hands are fully washed out the probability of a bull run is very high. Now any bounce is suspect but several positive factors are coming into play that call for a fair probability of a very short term bottom.
- The market is about to enter a seasonally strong period.
- Mid-term elections are ahead. Often elections remove uncertainty and the market goes up irrespective of who wins.
- Interest rates are coming down after a spike.
- Overall the U. S economy is staying strong.
- If the Fed were to indicate that it will slow down raising rates, it will spark a massive rally in stocks.
- President Trump and President Xi of China will be meeting next month. Optimism over a trade deal may drive a rally.
Tech stocks have been the market leaders. For this reason it makes sense to look at money flows in stocks such as Amazon, Facebook , Apple and Netflix . Semiconductors are the lifeblood of the modern economy. Semiconductor stocks have been hit hard. It makes sense to pay attention to money flows in stocks such as Intel , AMD , NVIDIA and Micron.
- This market is under the control of the momo (momentum) crowd. For this reason it makes a lot of sense to pay attention to the momo crowd especially for the short term.
- Smart money tends to have more consistent patterns than the momo crowd.
Setting stock market technicals aside, there is a big headwind for the stock market that many investors have not noticed. The headwind is slowing growth momentum.
Why November 1st may be an important day for the market?
United States is publishing the monthly ISM Manufacturing Purchasing Managers Index (PMI) and smart money will pay close attention to it. Apple will report November 1st after the close. Whisper numbers for Apple are higher than the consensus numbers. Stocks move based on the difference between the whisper numbers and the reported numbers.
If it falls, watch out below — but this warning has to be tempered because of the six factors that can ignite a rally explained above. Of course if Apple are good, it may also ignite a rally, specially if weak hands have been fully washed and strong PMI is reported.