Market Light Weekly Update October 31st, 2017: And Then There Were Two…

John Dupriest Market Light

The first month of the fourth quarter is now in the rearview mirror. Just two more to the 2017 finish line. Cruise control is set, and maybe we should just let go of the steering wheel for a while and go to the back and make a sandwich. After all, it looks like the road ahead is smooth and straight. What could possibly happen?

 

Consumers (and they collectively account for about 70% of the economy) are the cheeriest in over 16 years. The Dow Jones Industrial Average gained nearly a 1,000 points in October (971.91), and according to the DOL wages are finally starting to rise meaningfully. Markets are very close to all-time peaks. An ETF measuring volatility (VIXY) is positively flaccid (see chart below). In fact, October was the least volatile October in measured history for the S&P 500. What could possibly go wrong?

 

Hopefully nothing. But we all know there is always something happening, and – volatility notwithstanding – the market abhors mass-minus-momentum. There has to be some direction … and up looks pretty crowded.

 

If you are a slavish reader of our Market Light updates, you will see that the Dow has softened a bit. Just a bit. But it is enough to trigger a change in one of the primary measures: Phase, which has moved from Green to Orange. So has MACD (Moving Average Convergence Divergence indicator a comparison of moving average changes). But the other indicators have remained in the Green zone, so there is no change to the Light this week, though we are closer now than a week ago.

 

Strength in our database of 100 ETFs was seen in (yet again) Rare Earth Metals (REMX), Solar (TAN), Semiconductors ( SOXX), Home Construction (as an after effect of recent hurricanes and fires) (ITB), and Lithium (LIT). On the weak relative strength side were Mexico (EWW), Natural Gas Futures (UNG), Telecommunications (IYZ), Consumer Staples (XLP), and Pharmaceuticals (XPH).

 

The Technical Tea Leaves leave no meaningful omen: “No rules have fired.  This indicates that the prior signal and the current market will continue in this direction until the next signal is issued.”

 

 

Volatility isn’t what it used to be – for the moment. (Weekly chart)