Losing all of the 2018 gains was not a pleasant thing to face following Wednesday's close. Many traders (perhaps the dealer banks, as well) chose to treat the massive Wednesday sell-off as an opportunity to buy at a huge discount. Therefore, buyers outnumbered sellers on Thursday, slightly pushing the indexes back into the black for 2018.
Friday trading started with another steep drop as we prepared to "go to press" for this article, setting up another day of bruising losses.
As you can see, prices are still a long way from where this week began and an even longer way from where this month began. The winners here are not investors or traders, but the volatility bettors.
Volatility this month is huge as prices across the board are now struggling just to get back to the 200-day moving average. So, as we move into the last day of the week and the last couple of trading days in October, the 50- and 200-day moving averages now act as resistance for traders hoping to put this market back on its wheels.
It is clear that the 50- and 200-day moving averages have meant little when it comes to technical support this month. October is becoming a cruel month for investors exposed to the long side of the market.
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As prices narrow between the highs and the lows, the normal pattern is to drop out and make a major correction. October 2018 has proven that technical pattern to be disturbingly true.
Not to beat a dead horse, but the news from a technical perspective is worse than it appears, too, when you examine the largest index in the world, the New York Stock Exchange. The NYSE lost its gains for the year more than two weeks ago. But the sell-offs Wednesday and Friday morning also pushed the NYSE below the lows of February:
Not many people will pick this up, but this is a strong signal that the other indexes will also likely test the February lows and perhaps drop below those lows before this correction settles out. That's another 1,000-point drop for the Dow just to touch the February lows. It could go a lot lower before bottoming.
If prices move mostly sideways or chop about through the midterm elections, we are likely to see the 50-day moving average (blue line) race down through the 200-day moving average (red line), creating the feared "death cross" pattern.
There was some positive economic news on Wednesday, despite the negative direction of recent stock prices and a slew of suspicious bomb packages being covered every minute of the day by the mainstream media.
The Commerce Department reported on Wednesday that there was an unexpected increase in durable goods orders for the month of September. The report said durable goods orders climbed by 0.8% in September after surging up by 4.6% in August. Economists had expected orders to drop by 0.9%.
The unexpected increase in durable goods orders was largely due to a jump in orders for transportation equipment, which shot up by 1.9% in September after spiking by 132% in August. Excluding orders for transportation equipment, durable goods orders inched up by just 0.1% in September.
The National Association of Realtors also released a report showing an unexpected rebound in pending home sales in September. NAR said its pending home sales index climbed by 0.5% in September after tumbling 1.9% in August.
The rebound came as a surprise to economists, who had been expecting pending home sales to edge down by 0.1%.
This was followed by GDP numbers on Friday that showed a less than expected decline in growth from 4.2% in the second quarter to 3.5% in the third quarter. That keeps the U.S. economy on pace to post the best full-year growth numbers in 13 years.
The markets reacted with a steep drop. The Fed is on course to keep raising rates and all the problems that plague the economy and market are still in full force.
Normally, we see positive movement in prices at the end of the month through the first week of the new month - up to the new jobs report on the first Friday of the new month - often referred to as the "window dressing" period, where new money comes into the market from payroll withholdings and where money managers often rotate positions.
It is looking very unlikely that we will see that kind of activity this time, though.
To your wealth,
Dennis SlothowerEditor, Stealth Stocks Daily Alert and Wall Street's Underground Profits
Dennis Slothower has been leading a small but profitable group of investors to some extraordinary profits in both good markets and bad over the course of a 38+ year investment career, starting as a stock broker in 1979. In 2011 Dennis was named the top performer by Hulbert Financial Digest for avoiding the Crash of 2008. Now, he is bringing his extensive experience to the public through Outsider Club, Stealth Stocks Daily Alert, and Wall Street's Underground Profits. For more about Dennis, check out his editor page.