The S&P 500 had a very strong month in October, bouncing from a major uptrend line. This is a very bullish sign, especially as the first candlestick of the month was a hammer. It was preceded by another hammer, and the fact that we had everything line up at the same time to go higher is a good look. The market closed out the month of October threatening the 4600 level, but at the end of the day this is just another large, round, psychologically significant figure that will be blown past. Because of this, the market is likely to see that as only a temporary barrier, but one that eventually ends up in the rearview mirror.
Underneath, the 4400 level should offer significant support, especially as the uptrend line sits right there as well. Ultimately, we also have the 50-week EMA sitting just below the 4200 level. I think ultimately if we were to break below the 4200 level, then I might be a buyer of puts, but that is about as negative as I would get. After all, the S&P 500 is a way to play growth, and as we are going through earnings season, it does make sense that there will be a little bit of a “relief rally” as earnings have not been bad.
Economic numbers have been relatively decent, and earnings have fallen right in line. The S&P 500 continues to outperform what you can get in the bond market, as yields are still not keeping up with inflation. The US dollar has been falling, and that should also help the idea of the S&P 500 going higher as it makes exports cheaper. Nonetheless, the momentum is to the upside,and that is not changing anytime soon. At this juncture, any short-term dips will be bought into, and it is very likely that we would see the 4700 level attempted by the time we get to the end of the month. The fourth quarter tends to be rather strong as hedge fund managers try to make up a lackluster performance for the year yet again, buying all of the big name stocks that make up a majority of the driving factor for the S&P 500 to go higher. Remember, the indices in the United States are not equally weighted, so just a handful of stocks get everything moving.
