Shepler Capital Management: Weekly Outlook for 10/4 - 10/8/99
OCTOBER RALLY?
In last week's commentary we stated:
"...it appears that the 9/27 +/- 3 trading day turning
point has indeed inverted and will become a low rather than
a high... the chances for a mini-crash low are highest in
the Monday-Tuesday timeframe. So, although the early going
next week could be quite frightening for bulls, a
potentially important low should only be 1-3 days away...
the Dow 10,000 area should provide strong support, but a
panic spike below that level may be necessary to clean out
all the sellers, and set the stage for the next upleg."
And in a Tuesday intraweek update we stated:
"Based on our cycle work as noted in the weekly commentary
we expected a potentially important low in the 9/27 +/- 3
trading days timeframe. We are presently in the heart of
this timeframe and thus today's intraday low of 1259.29 SPX
is very likely the intermediate-term low we were expecting.
Positive Seasonality due to end-of-month 401k inflows
begins Wednesday, which makes the case for a 'Turnaround
Tuesday' even more compelling. Also our intraday momentum
charts have just given a strong buy signal within the last
hour. As a result we are covering short positions and
moving back to the long side as of today's close."
While Wednesday and Friday's intraday downdrafts gave us a
few nervous moments, when all was said and done Tuesday's
low of 1259.29 SPX has so far held, per our mid-week alert.
Certainly this is no time to be a complacent bull, but we
do feel that the conditions are ripe for a very strong
snapback rally in the month of October, with the
possibility for new highs by November a very real one in
our estimation.
One potentially bullish omen was this Thursday's stock
market performance, which was characterized by strongly
positive breadth readings.
Weak Thursday's tend to be the hallmark of a bear or corrective trend, and sure enough
ever since the July top every Thursday has been
characterized by weak tape action, until now. This last
Thursday was the first Thursday since 7/15/99 to show a
positive close for the NYSE Advance/Decline line. How
meaningful this turns out to be is sheer speculation at
this point, but coupled with our cycle work, and the
extreme bearishness pervading the market psychology, we
think the chances are very high that a multi-week rally got
started at Tuesday's intraday low.
Next week could see some further re-test of this week's low
prior to the Fed meeting, but a post-Fed relief rally
should follow the Tuesday 10/5 FOMC meeting, assuming of
course that Greenspan doesn't do something insane like
hiking rates again.
Our initial upside target for this rally is 1330 SPX. A
rally above that level should then target 1380-1400 SPX.
The 1259.29 SPX low is now critical support for the bullish
case, and we will place our stop for all long positions at
this level.
The next major turning point date we show is 10/19 +/- 3
trading days. We cannot be sure at this time whether that
will mark a high or a low, but we will be watching the
market action closely going into that timeframe. After that
our next major turning point is 11/3 +/- 3 trading days,
which we believe will be an important high.
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