September’s Down Friday/Down Monday warning still hangs
heavy over the market. In our October Market
Outlook Update to subscribers on 9/23 we alerted readers that DJIA logged
its fourth Down Friday/Down Monday (DF/DM) warning of the year on the first
Friday and Monday of September. This DF/DM was promptly followed by a 2.2%
weekly DJIA loss during the week ending September 10. DJIA then recorded its
fifth DF/DM on 9/20 with 614-point drop that Monday or 1.8% – NASDAQ was down
2.2% that day.
Historically a cluster of DF/DM’s like this has frequently
marked a significant inflection point for the market (2021 Almanac page 76). Based upon past DF/DM clusters, if DJIA
quickly recovers the losses and returns to pre-DF/DM levels, then the worst of
the pullback is likely over. However, if DJIA fails to promptly reclaim this
level then additional weakness is likely to materialize.
As you can see in the chart DJIA failed to regain 35,450 and
the market remains under pressure from the news flow that has troubled traders
over the past month as well as the volatility that has given October a bad
reputation – hence “Octoberphobia.” Also note how close DJIA is to our April 22 DJIA
& SPX Best Six Months Seasonal Sell Signal.
Tech stocks have been leading the volatility and downdraft
with the NASDAQ chart weakest of the major indices. NASDAQ has been below our July 14 NASDAQ Best
8 Months Seasonal Sell Signal since the end of September. The uptrend line
from the May lows through the August lows has been violated and the uptrend
line through the March and May lows is within striking distance and is currently
at the 200-day moving average.
This is rather typical October behavior. “Octoberphobia” is
real. But the good news is this is a looking like a nice set up for our Best Six Months MACD
Seasonal Buy Signal.