As we move into the final week of October, I am reminded of two quotes. One comes from my friend David Keller, CMT, who I have often heard say, “It is better to be out wishing you were in than in wishing you were out.” The second comes from the great Freddie Mercury and Queen’s Under Pressure, which captures the feeling of wanting out when the pressure becomes too much.
As risk managers, we never want to feel trapped. We never want to find ourselves in a position where we are screaming, “Let me out.”
S&P 500 and NASDAQ 100
Last week, we highlighted that the rising 60-week moving averages were in play, and that remains the case. Both indices saw early-week strength give way to late-week pressure.
The long-term trends remain bullish, but they are increasingly under pressure.
Source: Optuma
NYSE Advance/Decline Line and NYSE New Lows
In fairness, there has been a small improvement in the NYSE Advance/Decline Line over the past two weeks, but that improvement amounts to simply being “less bad.”
There was also some improvement in NYSE new lows, but that changed late last week. The five-day moving average of new lows has turned higher again.
Source: Optuma
The Mag Seven
Last week, the Mag 7 broke price-based support and the 50-day moving average. There is clear pressure on the group and, given its weight in the major averages, it will become increasingly difficult for the bullish index trends to hold if these stocks continue lower.
Source: Optuma
Dow Jones Transportation Average
To be clear, there is more to the building pressure in the market than the Mag Seven. The Dow Jones Transportation Average also remains under pressure. Price is below the now-declining 27-week moving average.
Source: Optuma
Seasonality
All of the above is playing out while the S&P 500 has, thus far, bucked the normal seasonal strength we tend to see in October.
To be fair, there is a full week of trading left in the month, and there is a tendency toward late-month strength. Should that strength fail to materialize, the bulls should take notice.
Source: Optuma
Credit
Meanwhile, the credit market is sending its own message of concern.
Source: Optuma
Final Thoughts
Faced with these facts, the buy and hold beta merchants will remain “turned away from it all like a blind man,” but we will continue to follow a process with an eye toward risk management.
Remember, it is better to be out wishing you were in, than in wishing you were out.
