October 9, 2007

Stockmarket Cycles update for Friday, October 5th

We asked ourselves after today's strong advance in the stock market whether we felt we had been putting too much emphasis on the potential for a very sharp October decline this year.  After doing some soul-searching and writing the newsletter which is going out this weekend, it is easy to answer that question.  The answer is, "Not yet!" We say that because today's rally has not in any way be important pattern that we have been delineating that begins, on average, on October 3rd of every year ending in the digit 7 and ends in the following month on November 8th.  As we have so often stated recently, the average decline over that time span has been over 14% on a closing basis for the Dow Jones Industrial Average. 

In today's newsletter, we itemize the date of the high closing price for October in each of the 11 previous years ending in the digit 7.  Let's repeat them for you here:

1897               October 4th
1907               October 1st
1917               October 1st
1927               October 3rd
1937               October 2nd
1947               October 20th (this was the only year that was up over the stated span)
1957               October 3rd
1967               October 9th
1977               October 1st
1987               October 2nd
1997               October 7th

Over 50% of those closing highs for the month of October within the years ending in 7 occurred in the first two trading days of the month (the 1927 high on October 3rd was the second trading day of that month).  After today's rally, you might think that there is no chance for that to occur this year.  But take a close look at the close of the Dow on October 1st and you might be surprised to discover that today's close was lower than the October 1st close despite the strength of today's rally.  That could, of course, change as early as Monday of next week, but so far the high close has been on October 1st for the Dow. 

It might also be interesting to note that the 54 month pattern that we discussed yesterday has resolved on the first second trading day of the month since 1994.  All these factors make next week's market action quite important. 

It is also important because strength into the end of next week will almost surely confirm significantly higher projections on the weekly projection charts. 

The McClellan Oscillator closed today at + 180.3 with the McClellan Summation index at + 1,931.2.  The ratio adjusted McClellan Oscillator closed at + 54.5 with its Summation index at + 277.7.  The CI/NCI ratio closed at 1.035 with the S&P ratio at 1.035.  This is the first time in the market's advance since the August 16th low that the CI/NCI ratio has reached the zone beginning at 1.035 and upward which tends to mark market tops. 

Mutual-fund switchers— Rydex switchers are in the Rydex S&P 500 Inverse 2X Strategy Fund.  Fidelity switchers are in 100% cash positions.  All mutual-fund switchers should call the telephone update each market day after 3:20 p.m. Eastern time and each market evening.

Stock-index futures traders— you were stopped out of our e-mini short at 1,568.25 because of the large gap opening and the alternate stop 5.70 above that opening for a loss of 17.50 on the trade.  On Monday, sell short the December e-mini contract on any move greater than 6.75 below the opening price with a stop 1.75 above the opening price. 

Gold still has a nominal 40 week upside projection from the weekly projection charts to 802.70 ±  15.50. Bonds generated a nominal 10 week downside projection to107 31/32 ± one full point but also reestablished a nominal 40 week upside projection to 117 1/2 ±  1 1/2 points.  Have a great weekend.  We will talk to you on Monday. 

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