October Effects May Prompt Further Sell-Offs
September is almost over but a cloudy sentiment is covering the stock market in the United States More and more investors are getting inclined to take sell positions.
U.S. Treasury Secretary Janet Yellen said that the federal budget is at risk of running out of money by October 18 if the Congress fails to pass the bill to suspend debt limit. “We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come,” she wrote in a letter to congressional leaders.
It seems that traders are well aware of such a scenario and are already trying to mitigate their risks. If the S&P broad market index closes this September below 4415.90 and the Dow Jones is still lower than 34968.56 points than the 10-month upward trend would be over as bearish patterns are clearly seen on monthly timeframes.
Even if the debt limit issue is solved the stock market is unlikely to resume its previous rally. In this case, the marker may have a temporary relief. So, if downside technical signals appear on weekly or monthly timeframe charts, it would be worth to consider them.
Apart from candlestick patterns, U.S. stock indices have long-lasting divergences. The weekly timeframe chart of Dow Jones index contains a formation of “double top” with a neck level at 33271.99-33312.07 points. The diamond pattern, or head & shoulders pattern, is forming on the S&P 500 index daily timeframe chart.
If such strong patterns are activated U.S. stock indices may lose 8-9% from the current values. That would lead to a global correction on other stock markets.
It is worthwhile to remember some historical facts here as traders are of a superstitious nature as shown by what is known as the “October effect”. In October 1929 the Great Depression started in the United States, in October 1987 black Monday rocked U.S. exchanges, and in October 2018 the trade war between the United states and China triggered massive sell-offs. Whether this effect will into force this October is hard to say as such events do not happen every October, but the downside trend for stock markets in October is in progress. So, keep your eyes open!
U.S. Treasury Secretary Janet Yellen said that the federal budget is at risk of running out of money by October 18 if the Congress fails to pass the bill to suspend debt limit. “We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come,” she wrote in a letter to congressional leaders.
It seems that traders are well aware of such a scenario and are already trying to mitigate their risks. If the S&P broad market index closes this September below 4415.90 and the Dow Jones is still lower than 34968.56 points than the 10-month upward trend would be over as bearish patterns are clearly seen on monthly timeframes.
Even if the debt limit issue is solved the stock market is unlikely to resume its previous rally. In this case, the marker may have a temporary relief. So, if downside technical signals appear on weekly or monthly timeframe charts, it would be worth to consider them.
Apart from candlestick patterns, U.S. stock indices have long-lasting divergences. The weekly timeframe chart of Dow Jones index contains a formation of “double top” with a neck level at 33271.99-33312.07 points. The diamond pattern, or head & shoulders pattern, is forming on the S&P 500 index daily timeframe chart.
If such strong patterns are activated U.S. stock indices may lose 8-9% from the current values. That would lead to a global correction on other stock markets.
It is worthwhile to remember some historical facts here as traders are of a superstitious nature as shown by what is known as the “October effect”. In October 1929 the Great Depression started in the United States, in October 1987 black Monday rocked U.S. exchanges, and in October 2018 the trade war between the United states and China triggered massive sell-offs. Whether this effect will into force this October is hard to say as such events do not happen every October, but the downside trend for stock markets in October is in progress. So, keep your eyes open!
