Monthly Analysis: Financials

2022-11-01T10:01:36-05:00November 1st, 2022|Monthly|

The S&P 500 ($INX) extended Wave 3 of its 3-wave major (long-term) downtrend to a low of 3,491.58 early in October before abruptly changing course. But the time the dust had settled on October 31 the $INX had posted a high of 3,905.42 and closed at 3,871.98, up 286.36 for the month. The move during October completed a bullish spike reversal, confirming a new major 5-wave uptrend should be in place. I hedge my bets a bit because of 2 factors: 1) Spike reversals tend to lead to an immediate move back in the original direction and 2) Long-term downtrends in US stock indexes tend to last 18 months putting the turn out at June 2023 (vertical gold line). However, we have to remember the Absolut Truth: The only absolute in markets is vodka.

The Dow Jones Industrial Average ($DOWI) was more dramatic than the $INX (discussed above). Here we see the $DOWI initially extended Wave 3 of its previous 3-wave major downtrend to a low of 28,715.85, moving into bearish territory beyond the 20% retracemernt level of 29,562.12. Then the index started to rally, eventually pushing to a high of 32,889.81 that eclipsed the September peak of 32,504.04 before closing October at 32,732.95. Given the $DOWI closed September near its low and October near its high, we can say the index completed a bullish 20-month bullish reversal confirming a new major uptrend is in place. A 2-month reversal is a bit stronger than a spike reversal, though a near immediate retracement remains possible.

The Nasdaq ($NASX) saw its attempt at establishing a new major uptrend fail during October. September’s close of 10,572.62 had the index in position for a possible double-bottom, but support couldn’t hold as the $NASX extended its previous downtrend to a low of 10,092.94. Like the other indexes, though, the $NASX finished the month on a rally, reaching a high of 11,230.44 before closing at 10,988.15. Similar to the $INX, this completed a bullish spike reversal again indicating the major trend has turned up. As with all these indexes, the test will be it it can hold its October low during a retracement selloff.

The US 10-year T-note (ZN) extended its major downtrend to a low of 108-265 during October, its lowest mark since October 2007. The T-note was showing no sign of a bullish reversal, giving every indication its downtrend could continue during November and beyond. If so, then it throws a curveball to the usual economic cycle with the tendency for bonds to bottom before stocks. But as I said before, the Absolut Rule can come into play in any market, any cycle, any time.

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