Jittery Investors Flinch as October’s Scary Shadows Darken

---

 

 

 

 

Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral.  The video analysis dives deeper.

---

 

Market Summary

U.S. equities staged a strong rebound with broad participation across sectors—especially semiconductors—while the Modern Family and global markets stayed in bullish phases supported by seasonally favorable trends. However, weak volume patterns, an elevated risk gauge, and lingering volatility suggest underlying caution despite improving internals and easing rates.

Risk On

• US Equity Markets put in a strong bounce-back week after last Friday’s market surprise about China and trade. They closed the week up between +1.5%-+2.5%. (+)
• Nearly all sectors were positive, led by semiconductors up +5.38%. (+)
• Value and growth are both still off their recent highs, but remain in bull phases and recovered this week. (+)
• The modern family looks very strong, with all sectors up this week and in bull phases save for KRE. (+)
• Both emerging and developed markets are in strong bull phases. (+)
• Seasonally, October tends to be positive, particularly later in the month and into November. (+)

 Risk Off

• Volume patterns remain weak with considerably more distribution days than accumulations days. (-)
• Risk gauge is fully risk-off. (-)
• Volatility remains elevated from last Friday’s jump, though it failed to put in a new high close all week and showed some signs of easing into the close of the week. (-)

Neutral

• Market internals all remain near their mid-line, some coming off recently higher levels. (=)
• The New High New Low Ratio bounced back a little from last weeks drop, with all the slopes back to positive and around the 70 leve, though broadly trending lower from their August peak. (=)
• The color charts (moving average of stocks above key moving averages) remains mixed with slightly more dominant negative trends, particularly on the 20 and 50 periods, though the 200-Day MA are a bit more positive with IWM being the strongest of the three. (=) 
• Rates eased this week with the likelihood of two more rate cuts seeming assured. (=)
• Gold continued to put in new all-time highs this week on Thursday, this time along with strong equity participation. (=)
• Bitcoin continued its slump, hitting its lowest close since July, though broadly still in a trading range. (=)

---

Actionable Trading Plan — Week Ahead

1. Core Market Bias: Selective Risk-On

Despite the official risk gauge remaining risk-off, the market’s strong rebound across major indexes and sectors—particularly semiconductors and global equities—suggests short-term momentum is turning bullish. The plan should lean risk-on, but with tight risk management given weak volume confirmation and elevated volatility.

2. Equity Positioning

• Primary focus: Large-cap growth (QQQ), semiconductors (SMH/SOXX), and small caps (IWM) which show improving long-term (200-day) trends.
• Entry: Add exposure on any 1–2% pullback early in the week that holds above last week’s lows or 20-day moving averages.
• Position sizing: Half positions initially, add on confirmation of strength with volume expansion.
  

3. Sector Rotation Opportunities

• Overweight:
• Semiconductors (SMH/SOXX): Leading strength +5% on the week.
• Discretionary (XLY) and Tech (XLK): Seasonal tailwind plus relative strength.
• Emerging Markets (EEM) and Developed Markets (EFA): Bull phases confirmed and could outperform if the dollar weakens with rate-cut expectations.
• Underweight or Avoid:
• Regional Banks (KRE): Only Modern Family member not confirming a bull phase.
• Energy (XLE): Neutral to slightly lagging despite broad risk-on behavior.
  

4. Hedge and Volatility Strategy

• Maintain a small volatility hedge (e.g., long VIX calls 2–3 weeks out or short SPY put spreads) given risk gauge remains red and volume signals are weak.
• If volatility fails to make new highs midweek, consider rolling off hedges and redeploying into high-beta equities.
  

5. Macro and Intermarket Considerations

• Rates: Expect easing bias; favor long-duration bonds (e.g., TLT) as a secondary allocation or hedge.
• Gold (GLD): Keep as a neutral or small long position—new all-time highs are supportive but likely driven by rate cut anticipation;
  

6. Tactical Outlook

• Strategy theme: “Buy the pullbacks in leadership, fade laggards.”
• Watch for confirmation: A pickup in volume and internals turning decisively positive would justify a full risk-on shift.