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Stock Markets – Always an interesting week

Market Analysis

USA30, Daily                

The final week of October is always interesting for global and particularly US stock markets.  October 28-29 1929 was the infamous Wall Street Crash when the Dow Jones Industrial Average (Dow) lost close to 25% of its value in 2 days and triggered the 10 year Great Depression.  It also marks in the USA, every 4 years, the two week count down to the US Presidential Election and the busiest week of Earnings Season; lots of potential fundamental news to de-rail or propel stock markets.

This year is not really any different; there is a tight two horse race for the White House following a two term President, some strong earnings reports already registered and key players ready to report this week. The Q3 earnings announcements peak this week with about one third of the Dow and one third of the S&P reporting, including the two biggest stars Apple (Tuesday) and Alphabet (Thursday). Through the earnings season so far, 7 of the 11 S&P sectors have recorded profit growth, while earnings have beaten expectations by nearly 7%. This week’s results will be eagerly followed.  History also shows that following a two term president, markets can rally on a victory for the incumbent’s party (Mrs Clinton) and are flat or negative for the year if there is a change of party in the White House.

All these fundamentals lead me to look at a rebound in the US stock markets from their range bound patterns.  The Dow (USA30) touched the floor of its channel and the lower Bollinger band on Friday (October 21), only to break above the 20 DMA today and generate a short term LONG position. Entry was at 18,220 with Target 1 the top of the Bollinger band, trading range and north of the 50 DMA at the psychological round number of 18,400.  A clear break of this range and a new all-time high would be target 2 at 18,660.

The S&P500 (USA500 and the world’s most important stock market)  is in a similar range and triggered an entry at 2140.00, with Target 1 2170.00 and Target 2  2192.00.  

U.S. flash Markit PMI jumped 1.7 points to 53.2 in October, after falling 0.5 points to 51.5 in September from 52.0 in August. This is the highest since last October’s 54.1 print. New orders rose to 54.7 from 51.1, though the employment component declined. The better than expected headline is consistent with expectations for a pick up in activity in Q4.


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Stuart Cowell

Market Analyst


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