October is known for some scary drops. That said, so far this October, the main U.S. indexes have been holding their own. However, with one breadth/momentum measure in the midst of a multi-month decline, traders are wondering whether, under the surface, the worst may be over, or whether the underlying weakness will lead to another index washout.
Indeed, October is, on average, the S&P 500 index’s SPX most volatile month. Since 1928, the index’s monthly high-to-low range as a percentage of the prior month’s close has tended to rise throughout the summer, peak in October, and then deflate into year-end. In fact, December has been, on average, the least volatile by this measure:
This October has not been without some dramatic action across asset markets. Indeed, after surging to an all-time high, bitcoin BTCUSD, in the wake of a record crypto liquidation, has taken a dive. And on Tuesday, gold GOLD, after also rocketing to fresh all-time highs, suffered its biggest one-day meltdown since August 2020.
The main U.S. equity indexes, which have also scored fresh records this month, are now off just slightly from those levels. The S&P 500 and Nasdaq IXIC are now down just 0.8% and 1.3% from their October 8 record closes.
Meanwhile, the McClellan Summation Index, a breadth/momentum measure based on advancing and declining issues, has traders on edge.
Both the NYSE (.AD.N) and Nasdaq QQSHF Summations peaked in July. Here is the Nasdaq McClellan Summation Index, which diverged ahead of the market collapse earlier this year:
Bulls want to see it get back in gear to the upside with the Composite. If this measure breaks its September low, broader weakness may become too much to ignore.
Source: Reuters (Terence Gabriel)
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