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The Most Important Trading Day of the Year

By Jeff Clark
Thursday, October 27, 2011

Monday marks the last trading day for October. How the market closes on that day will tell us a lot about where we're headed for the next several months.
 
Longtime readers know I use the 20-month exponential moving average (EMA) to identify bull and bear markets. If the S&P 500 is trading above its 20-month EMA, stocks are in a bull market. If the index is trading below it, the bear is in control.
 
As you can tell from the following chart... last month, the S&P 500 closed below its 20-month EMA...
 
S&P 500 Closes Well Below 20-Month EMA
 
Even though, according to this chart, stocks entered a bear market at the end of September, I was still willing to buy into the stock market in early October in anticipation of a year-end rally. You see, each of the previous times the S&P broke the line to the downside, stocks always rallied back up to "kiss" the line from below. I expected we'd get that "kiss" this time as well, and it could lead to powerful gains in just a few months.
 
It only took three weeks.
 
Now we're at a critical point again. The S&P 500 is currently trading about 20 points above its 20-month EMA. If it can hold this level until Monday and close above the line, all the stock market weakness of the past few months is likely to turn out to be just another "whipsaw" moment – similar to what we saw last year – and we can look forward to higher stock prices over the next several months.
 
On the other hand, if the S&P 500 closes below its 20-month EMA on Monday, the chart is going to look horrifically similar to the action in 2001 and 2008. That action led to declines of 37% and 46% respectively for the S&P during those bear markets.
 
No matter whether you're leaning bullish or bearish, Monday is likely to be the most important trading day of the year.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

"Right now is the best opportunity I've seen in two years to 'buy low' in the gold sector," Jeff wrote last week. Gold stocks are up more than 8% in just five trading sessions.
 
If you're worried the S&P is headed for another 2001 or 2008, your best bet is to move some money out of stocks. But if you're doing what the average investor is doing, you might actually be doubling down on a risky bet. Learn how to protect yourself here: How to Act on My Most Urgent Warning.

In The Daily Crux
Market Notes
Global oil rally continues... PetroChina, Royal Dutch Shell, and BP touch fresh two-month highs.
 
Biotech giant Biogen is up more than 90% over the past 12 months.
 
Chinese "glamour stocks" are stuck in a downtrend... Sina and Sohu are both down more than 40% in six months.
 
"Fear index" VIX is still well above key levels.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1242.00 +1.1% +4.8%
Oil (USO) 35.06 -2.1% -1.7%
Gold (GLD) 167.40 +1.1% +27.9%
Silver (SLV) 32.50 +0.2% +39.6%
U.S. Dollar 76.26 +0.2% -1.4%
Euro 1.39 0.0% +0.4%
Volatility (^VIX) 29.86 -7.3% +47.7%
Gold Stocks (^HUI) 556.87 +1.0% +9.5%
10-Year Yield 2.20 +3.3% -16.7%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 124.30 +1.0% +6.8%
S. Korea (EWY) 54.63 +0.6% -0.7%
Canada (EWC) 27.86 +1.9% -1.6%
Japan (EWJ) 9.57 +0.2% -3.4%
S. Africa (EZA) 62.93 +1.7% -4.1%
Taiwan (EWT) 12.95 +1.2% -4.5%
Israel (ISL) 14.84 +0.3% -9.2%
Singapore (EWS) 11.98 +1.0% -9.6%
Lat.America (ILF) 44.18 +2.5% -13.8%
Russia (TRF) 16.23 +2.4% -19.2%
China (FXI) 36.13 +4.0% -20.1%
India (IFN) 24.75 +2.1% -26.7%

Sector ETFs
Symbol Price
Change
52-Wk
Retail (PMR) 21.27 +0.9% +19.8%
Utilities (XLU) 34.48 +0.4% +13.4%
Consumer Svcs (IYC) 70.27 +0.1% +11.0%
Big Tech (QQQQ) 57.27 -0.1% +10.9%
Health Care (IYH) 68.61 +1.2% +7.9%
Big Pharma (PPH) 67.90 +1.7% +7.6%
Internet (HHH) 74.43 -7.2% +7.0%
Oil Service (OIH) 125.98 +2.6% +5.9%
Industrials (IYJ) 61.91 +1.0% +4.6%
Software (PSJ) 24.52 +0.4% +4.0%
Media (PBS) 13.31 +0.9% +3.4%
Real Estate (IYR) 55.45 +0.9% +3.3%
Semis (PSI) 14.31 +1.4% +2.2%
Transportation (IYT) 86.14 +0.5% +1.4%
Defense (PPA) 17.87 +0.1% +0.8%
Biotech (PBE) 19.98 +1.2% +0.6%
Construction (PKB) 11.48 +2.3% -0.1%
Telecom (IYZ) 21.22 +1.1% -1.0%
Water (PHO) 16.95 +2.1% -2.3%
Basic Mat (IYM) 65.69 +2.2% -3.2%
Insurance (PIC) 14.84 +0.0% -4.6%
Financials (IYF) 49.18 +1.6% -6.1%
Nanotech (PXN) 6.16 -0.3% -34.9%
Alt. Energy (PBW) 5.77 +1.8% -42.5%

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