The market plunged on both September 1st and October 1st. Perhaps that was because the big funds finished their month-end window-dressing. Are we seeing the same thing now? Monday will be the first trading day of November.
SPY rallied on light volume Thursday, so bulls must be cognizant of the possibility that the market is constructing a bear-flag retracement of the plunge. However, volume in the futures (ES) was not light, so this may be a bullish indication if traders were reaching for something leveraged rather than boring old SPY.
But even it does turn out to be a bear-flag, bears must be careful not to short it too early. Flags are similar to wedges in that they are sharp and pointy. They keep pushing up to a pinnacle, blowing out all your stops in the process.
Breadth ramped up to a very high level on Thursday. If the market can stay roughly flat as the internals unwind a bit on Friday, that will be a bullish development. All the bulls need to do is keep it flat and they win.
SPY didn’t leave any gaps behind on the way down, so when looking for upside targets for the market, the next one would be the QQQQ gap on October 28th at 42.35. The XME was halted at its 10/28 gap on Thursday, so maybe the Q’s will be stopped at their corresponding gap today. The XLF has two gaps above also.
All the major ETF’s left un-filled gaps on Thursday. That’s a very bullish sign, in the short term. As I write, the overnight futures are in a bull-flag formation, so that is bullish if it lasts until the open. It is ironic, but short-term bull-flags can construct a bear-flag on a higher time-frame.
Keep an eye on the BKX banking index – its 20-day moving average is poised to cross below the 50-day if the banks don’t rally strongly today. That could be a bad omen for the market. It just doesn’t seem like the sort of thing a fabulous bull market should be doing. The banks appear to be worrying about the FOMC meeting next week.