The impressive rally from the October 15-16 lows looks ready to push the S&P 500 and Dow Industrials up close to 2% for the month. The strength and relentless nature of the rally has surprised many, especially those who were looking for a new bear market.
The negative technical divergences at the early September highs warned of a correction, which I thought would be a buying opportunity. The decline was sharper than I expected so, in my early October column Will the October Curse Spook Investors Again? I wondered whether we would see even more panic selling.
On October 15, there were clear signs of panic selling and forced liquidation as many hedge funds were apparently on the wrong side of both crude oil and the bond markets. The sharp decline was not confirmed by some of the technical studies, which turned positive on Friday, October 17. The strong readings from the market internals the following week pushed the A/D lines above resistance on October 21, which generated stronger buy signals.
On Friday, the Nasdaq Composite reached its highest level since March 2000, and with earnings stronger than expected, the market seems poised to move even higher. As I pointed out last week, my main concern was that continued weakness in crude oil could derail the stock market?s rally as the energy sector continues to be a drag on the market.
Friday?s better than expected earnings from Exxon Mobil (XOM) and Chevron Corp. (CVX) helped to soothe the market as refining profits offset declining crude oil prices and lower production. Both stocks need to rally further to confirm that their corrections are really over.
Source: Markets
