Special Bulletin: October 13, 2020

Nasdaq Confirms Dow Jones Signal, While S&P500 Sits It Out

Our Current Market Outlook has been upgraded to “Market in an Uptrend” with a “green” light. Three of our Core Four indicators are green and the last is yellow. This combination creates a positive outlook.

Two weeks ago, we wrote, “The correction that started almost a month ago may have run its course. If so, it proved to be the harsh shake-out we were expecting. On the other hand, if the markets do not bolt further ahead quickly and in significantly higher volume, a second wave of selling may immediately develop and push our signal back to red. The bulls must make their stand right now or be mauled by the bears.” (Emphasis added)

The bulls did indeed make their stand and pushed the markets sharply higher over the past week. As a part of that run, the Nasdaq finally flashed a Follow-Though day (a bullish confirming signal) on Monday and confirmed the Dow Jones signal from September 30th, thereby adding to the markets already strengthening tone.

On a cautionary note, there is a curious divergence happening with the S&P500 index. It has not yet flashed a Follow Through day like the sleepier Dow Jones and the rip-roaring Nasdaq have. In fact, the S&P500 even experienced a Distribution Day today.

This action is most likely telling investors that the S&P500 is being held back by the many industries represented in its index that are dependent on more stimulus and/or are more negatively affected by the pandemic.

The next 5 days will be very telling. As we see it, there are 3 main possible outcomes. 1)- The markets bolt ahead immediately and hit new highs. 2)- The markets pause or move down slightly for a few days and then catch fire for a move to new highs. 3)- The markets falter over the next week and then a new wave of selling slaps the indexes back into the lower end of a bigger trading range.

What should investors do now? Remember that the current trend is up until internal indicators say otherwise. Expect a positive news catalyst soon, but prepare for a negative one; have an exit strategy ready to go.

Have a Triumphant day! ®