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Watch What The Market Is Telling You, Not The News

Watch What The Market Is Telling You, Not The News

The stock market has had a crazy past two weeks after a very weak performance in September, where the Nasdaq Composite was down 5.2% and the S&P 500 lost 3.9% for the month. The stock market opened rough on Friday, October 2, with panicked overnight selling in the futures and stocks as traders reacted to President Trump’s COVID-19 diagnosis.

However, despite the frantic end to the week, the overall market remained strong, as there were three times more advancing issues on the NYSE and than there were declining ones. That is why I concluded last weekend that “as long as the market turns higher by the end of the week [of October 5], the intermediate trend will stay bullish.”

However, there was another news-related market decline last week, as President Trump ordered an end to negotiations over a new economic relief package. From a high of 3431.56, the S&P 500 dropped to a low of 3354.54 in the last 90 minutes of trading on Tuesday. The market commentary after the close was not optimistic, as this was the S&P 500’s largest daily drop in almost two weeks.

However, a longer view is necessary to diagnose the current market’s trend. The above chart of the Spyder Trust (SPY) has data up through the close on Tuesday, October 6. As you can see, the SPY low from late September corresponded to SPY’s high from June high (line a), which shows that resistance level became support.

The advance/decline numbers help to give an even better picture. On Wednesday, September 30, the S&P 500 Advance/Decline closed above its downtrend (line b), which was a sign that the correction from early September was over. Then on Monday, October 5, the S&P 500 A/D line made a new

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