October Rally or Trap? Unpacking the Market's Inner Structure
October Rally or Trap? Unpacking the Market's Inner Structure
Seasonality is a small part of the equation. With price action leading the way and breadth indicators flashing caution, dive into this comprehensive technical review of indices, megacaps, and ETFs.
Last week, I anticipated that there were cracks beneath the rally the $S&P 500(.SPX)$ had printed. During the prior week, the index closed with a +1.2% move that could be perceived as a bullish condition; however, I anticipated that the gap at 7,657 was going to be filled, quite an unpopular suggestion at the time. But that is exactly what happened.
I post a daily note tracking the SPX and ES=F including their levels for the next session, also the main weekly movers from our watchlist. On Thursday night I mentioned the probabilities for a decline in the volatility index, which is what happened on Friday and the SPX set a tactical bounce.
So for this week that just ended, bearish setups presented like $JPMorgan Chase(JPM)$ and $iShares Russell 2000 ETF(IWM)$ reached their targets. My neutral stance on the market also included bullish setups, like $VanEck Semiconductor ETF(SMH)$ , which reached its bullish target of 629.4 for a plus 3.8% gain (and actually closed above it). $Eli Lilly(LLY)$ also reached its bullish target during the week.
Today, we have some of the Magnificent Seven and other megacaps on close watch for investors and traders since their setups are looking like the ones for $Meta Platforms, Inc.(META)$ , and $Advanced Micro Devices(AMD)$ one month ago, or like Bitcoin, $SpaceX(SPCX)$ , and $SPDR Gold ETF(GLD)$ at the end of July. Among other megacaps, on Wednesday I mentioned how likely SPCX was to bounce, and we saw a strong bullish move for the week with SpaceX ending up 6.91%.
The current market structure demands close attention and strict risk management for both long-term investors and traders. Today, we continue navigating a zigzag of probabilities regarding a potential rate hike at the Federal Reserve’s October meeting.
The probability of a rate hike was above 64% one week ago, and currently, it sits just at 22%. Looking ahead to next week, we have key economic data that could shift these rate hike probabilities in either direction, including Global Services PMI, ISM non-manufacturing prices, crude oil inventories, the 10 year note auction, and most importantly, the release of the FOMC meeting minutes on Wednesday at 2:00 PM. It will provide tangible clues of the rates pathway.
Right now, the treasury yields remain at multi-decade highs, and we have been studying how this choppy price action might be encrypting hidden risks. Subscribe to stay aware of what is happening underneath the surface of price action. Just as a reference the 5-day gains for the tickers listed in the S&P500 look really weak:
Markets are always moving - and sometimes, the best move is knowing what works for you.
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