A Look At The Stock Market Goblins Of October

October is the month of Halloween Goblins and stock market crashes, and as we enter this October, the environment is particularly spooky.

The 3rd Quarter was a violent one with the Dow Jones Industrials (DIA) giving up 12% and the S&P 500 (SPY) losing 14%, while the NASDAQ (QQQ) shed 13%, the worst quarterly performance since the financial crisis of 2008-2009.

See My 3 Minute Video Interview on MarketWatch

On My Wall Street Radar

The point and figure chart paints a ghostly picture of a bear market.

We  see that the S&P 500 (SPY) is on a “sell” signal with a bearish price objective of 1010. That, of course, would be a significant decline from current levels and would have to break through the significant support found at 1120.

But the bulls have their own challenges as they face significant resistance at the 1200 level.

We have been in this long sideways channel for sometime with lots of volatility, but the longer this goes on the more violent the eventual breakout will be.Technical and macro fundamentals would point to the next move being down and therefore Wall Street Sector Selector remains in the defensive mode, expecting lower prices ahead.


WSS

Chart courtesy of www.stockchartrs.com

The Economic View from 35,000 Feet

The economic picture remains troubling with many negative data points (and some positive ones) coming in last week:

1. Chinese PMI came in at 49.9, the third straight month of contraction.

2. German August Retail Sales dropped 2.9%, the largest in four years

3. The Economic Cycle Research Institute (ECRI) says that the U.S. is entering recession as their weekly indicator hit a new one year low.

4. Durable goods orders declined for August

5. New home sales dropped to 295,000 from a previous 302,000

6. Dallas Fed Manufacturing dropped to -14.4 from -11.4, its fifth straight monthly decline.

7. August Personal Income declined -0.1%, the first drop in two years.

8. Consumer spending dropped to +0.2% from the previously reported +0.7%.

On the upside, Chicago PMI rose along with September Consumer Sentiment and, most importantly, 2nd Quarter GDP was revised upward to 1.3% from 1% which gives the economy a little more room above “stall speed.”

What It All Means for Stock Market and ETF Investors

What this all means is that the global economy continues to stagger near the precipice of recession and many global markets are now in bear market territory. It’s a period of heightened danger, both on a technical and fundamental basis, and we can expect more volatility ahead.

This Week’s Financial News and Economic Reports.

Last week was big for economic reports but this coming week will be a true monster.

On Monday we get the all important September ISM Report, and we’ll also hear about August Construction Spending and September Motor Vehicle Sales.

Tuesday brings August Factory Orders, Wednesday focuses on the September ADP Employment and September ISM Non Manufacturing Reports, Thursday brings the usual weekly New and Continuing Unemployment Claims, and on Friday we get the widely watched September Non Farm Payrolls Report and September Unemployment Rate.

October promises to be a frightful month and we’ll be keeping an eye out for any goblins that might come our way.

Get our Free Newsletter!

Disclosure: Wall Street Sector Selector actively trades a wide range of exchange traded funds and positions can change at any time.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.