The Stock Market's Monstrous Week

As Halloween rings out a record setting October, the stock market faces a monstrous week of news and data ahead.

October was nothing, if not exciting, and November promises more of the same as this week brings a tidal wave of news and data.

At Wall Street Sector Selector, we were able to participate in last week’s euphoric relief rally and lots of factors will affect the sustainability of this rally as we head for the end of the year.

On My Wall Street Radar

S&P 500 (SPY) chart courtesy of

In the chart of the S&P 500 above (NYSE:SPY) we can see from the RSI that the major index is approaching overbought levels and significant resistance lies just ahead at the 1300 level.  While the “death cross” is still in play, the index has closed above the widely watched 200 Day Moving Average and the 50 Day Moving Average is turning up.  Significant support lies at the 1225 level.

Dow Theory (NYSE:DIA) has registered a “buy” signal with breakouts to new highs and seasonality points to the traditional strong finish to the year and the “Santa Rally.”

Overall, technical indicators point to an uptrend going into the end of the year that will depend upond holding the 200 Day Moving Average.  At overbought levels, a correction to 1225 or so in the short term is a strong probability.
The Economic View from 35,000 Feet

Last week brought a blizzard of economic news, particularly from Europe, but one significant event went unnoticed behind the scenes and that is the Congressional “super committee” meetings on the budget deficit.  Those meetings have continued largely in secret and as the November 23rd deadline comes onto the radar screen, this factor will come to the forefront of our attention.  iShares Chief Investment Strategist Russ Koesterich offers an insightful look into what to expect in his article, “The Fatal Flaw of Deficit Reduction Efforts.” 

Europe (AMEX:EFA) was the big news, of course, and, in my opinion, last week’s action did nothing more than buy some time for the Euro Zone to work their way out of this debt crisis.

In a nutshell, they boosted the leverage of the EFSF, (European Financial Security Facility) forced a 50% “haircut” on Greece’s bondholders, agreed to recapitalize the banks and set an ambitious set of goals for the G20 summit meeting on November 3-4 in Cannes, France.  What they ddn’t do was solve the problems of slow growth and too much debt and what they did do was increase the likelihood that Ireland, Portugal and even Italy will come looking for the same good deal regarding debt relief.  What no one seems to be able to explain is how Italy’s 2 Trillion Euro debt is going to be managed.  Somehow, the words “austerity” and “Italy” just don’t go together.

But Chancellor Merkel was sounded the correct warning when she said, “if the Euro collapses, Europe collapses…that can’t happen,” and for today, at least, she and her colleagues managed to dodge a huge bullet yet again on the heels of their 14th summit in 20 months.

My friend, Todd Harrison, CEO of has penned a great review of this whole situation in his article, “Is the European Crisis Over?”

In more mundane news, Third Quarter U.S. GDP was revised upward to 2.5%, the biggest gain so far this year and double the second quarter rate, while China’s PMI rose to 51.1 from 49.9, while in the bad news column, durable goods declined and consumer confidence dropped to levels not seen since the depths of the financial crisis in 2009.

But major U.S. indexes (AMEX:DIA) (AMEX:SPY) didn’t seem to mind as they’re on track for historic gains as reported by my friend, Jeffrey Hirsch from Stock Traders Almanac in his great article “Greatest DJIA October Gain Ever.”

Leading exchange traded funds (ETFs) for the week were iShares Silver Trust, iShares FTSE/Xinhua China 25 Index and iShares MSCI Brazil Index.

Bottom line for stock market and ETF investors: Technical and seasonality indicators point to an uptrend into the end of the year, however, Europe poses an ongoing threat if, as is very likely the case, the debt crisis in Europe is not over.
 The Economic News Week Ahead

A huge week lies ahead as we get Chicago PMI on Monday, October ISM and September Construction Spending on Tuesday, the Federal Reserve statement and Dr. Bernanke press conference on Wednesday, jobs, ISM Services and Factory Orders on Thursday, and the all important Non Farm Payroll and Unemployment reports on Friday.

Watch for goblins, Frankenstein and other monsters, not only on Halloween but throughout the week ahead.

Posted 10-30-2011 4:40 PM by John Nyaradi