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Market Outlook

The popular averages shot to the upside on Friday, the day of October options expirations. October consumer sentiment is the highest in seven years. New home starts increased nicely in September. Earnings reports from Morgan Stanley (MS + 2.1%), General Electric (GE +2.4%) and Honeywell (HON + 4.2% ) were helpful, while Google (GOOG -2.5%) was hurtful. Meanwhile, the price for crude oil rose while gold fell on Friday.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). An earlier panic led to a down-thrust with high for summer trading volume on July 31, which shoved the SPY beneath its 50-day moving average. During the first week of August the price move alternated each day, with the net result a slight gain and a repainting of my weekly arrow to green. On both August 14 and 15 the SPY closed virtually at its 50-day MA. That allowed my monthly arrow to return to green. The sharp move above that level on August 18 resulted in all of my arrows being colored green. A record high for the SPY was set in early September before a general downward drift into mid-September. Then there was a rally toward a new high on September 18.

   Afterward the price retreated to the 50-day moving average before a sharp bounce up from it on September 24. That level was breeched on the next day. For several days each day’s lows remained fairly steady not far under that level. Then a plunge occurred on October 1 amid heavy trading volume. That painted all of my outlook arrows a cautious yellow. The price returned to the 50-day MA intra-day on October 6 but was turned back. That pull downward continued on October 7, before being completely reversed on October 8. Then for three days the price declined and fell through the 200-day moving average on Monday. There was a slight bounce on Tuesday before the exceptionally high volume plunge on Wednesday morning. Most of that Wednesday drop was made up in the afternoon. A Thursday morning drop was nearly erased by the close. Then came a nice rally on Friday.

   Mid to late Octobers often produce important bottoms leading to significant autumn-winter rises. Usually there must be an emotional component to set up a meaningful bottom. Fear of the spread of Ebola may have been that scare factor. The bounces on Wednesday and Thursday followed by confirmation on Friday has caused the last of my outlook arrows to be painted green.  

DISCLAIMER: Our commentaries are provided as general information and not investment recommendations. You are responsible for your own investment decisions. Our opinions are based on historical research and data believed to be reliable. There is no guarantee that results will be profitable. We are not responsible for errors or omissions. We may hold positions in vehicles that are mentioned.

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