Friday The 13th

A fitting date for the month of spooky equity market occurrences, Halloween and our eery rally. We reached the rally upside target of 1360 on the S&P on Thursday. I had mentioned in a prior post we had hit it last week but I was wrong. The upside target is taken by evaluating the correction pattern and from the double bottom created in the S&P extrapolating that distance to the upside. I had mentioned a month or so ago that I expected the upside to be 1360-1400 if we broke to new highs. 1380 is the last remaining major Fibonacci retracement level on the S&P between where we started and the all time highs set in 2000. I'm guessing that the Generals are actually shooting for 12K on the Dow. A nice pretty number to cheer about. It may be hard to believe but this is the weakest rally in five years by nearly any measure. Now, that said, when the markets charge this hard without normal breathing, it is typically an eventual pump and dump. The only other times in the rally post 2002 we had a rally this long without a 1% single day correction was at the end of 2003 when technology then cratered sending the SMH down 40% into its current bear market and, secondly, a few months before the May sell off this year.

While the three Dow indices-Transports, Industrials, Utilities-are all very narrow, comprising only a handful of stocks, the Dow Composite gives a better measurement by including the 65 stocks in all three indices within a reasonably equal weighting. Thus, I prefer using the Dow Composite as opposed to each index. So, for all of this fussing, we are back to May levels.