A brief update on the headline US markets, namely the Dow, S&P 500 and Nasdaq 100.
Beginning with the latter, we note that Mark Hulbert’s Nasdaq newsletter writer sentiment data shows a very bearish sentiment profile, which is contrarian bullish.
Wait for one more bounce in stocks before a broad decline
This seems to be in line with a scary October scenario that more often ends up being lore than reality when it comes to major market declines. What we have been anticipating is corrective activity but perhaps only to clear the pipes for renewed upside.
The technicals on the big 3 indexes continue to indicate that is possible or even probable, but considering the HNNSI and other factors as reviewed in NFTRH 310 (HYG vs. TLT risk on/off indicator, back test scenario) we should watch the daily technicals closely.
All 3 indexes made a short-term lower low, which is what brought out a short-term bearish case. NDX, despite the HNNSI sentiment is above key support. A break up from the short-term down channel would caution against a bear stance. A break down brings the anticipated correction.
SPX is below key resistance. It is bearish below this level. A break above would eliminate the bearish daily technicals.
Dow as you know has a target of 17,500, but could easily decline to 16,500 first and still remain unbroken. A break of the red down trend line would undo the negative daily technicals.
Bottom Line
We have been expecting some October corrective activity. We have also been aware that this could be a buying opportunity if sentiment becomes too bearish. The HNNSI for one says that is happening.
While the preferred scenario is for a continued short-term correction to put some real fear in players before a decent low, the HNNSI for one indicates players are getting bearish already and if the market breaks the upside limits shown above, it could put on another leg up sooner, rather than later. Watch the daily technicals per the above.
