Mixed Signals

October has been a major reversal month for the stock markets. While September was pretty ugly, October, in hindsight, has been anything but.

As nice as the rebound may have been, the signals however, are not so nice and clear. As of Monday (the 25th), the futures markets are indicating a higher open. But the chart pattern is pretty mixed.

On the one hand, the momentum of the last three weeks seems to indicate this market can go much higher. In fact, last week’s move higher for the SPX broke outside of all expectations to push to all-time-highs. The aggressive upward momentum indicates more high prices to follow. And certainly some of the high-flying names in technology (think TSLA) are soaring.

On the other hand, stocks look very overbought at these levels. So there are definitely competing signals.

It’s likely October finishes on a strong note with this week climbing higher. However, these markets – and volatility – have been more aggressive at times. The VIX has dropped significantly in the past month (like 50%), which is another contrarian signal.

So watch closely. While the SPX upside for the week looks to be 4600, there is only weak support at 4533. Should this support be breached, the index could be looking for support down at 4480 (about 1.5% lower). Or worse, it could search out the 50-dma down at 4443 (about 2.23% lower).

Either way, this market has bested the year-end target so far. The question is, can these prices hold?

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