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Market Outlook

The popular averages returned nicely to the upside on Thursday. Jobless claims rose last week but from a low level. The October flash purchasing managers index showed growth but at a slower pace. EU manufacturing is up but future expectations are not high. Third quarter earnings reports keep rolling in. Investors reacted well to reports from Caterpillar (CAT +5.0%) and 3M (MMM +4.4%). They frowned at reports from General Motors (GM -1.2%) and Southwest Airlines (LUV -2.8%). Meanwhile, the price for crude oil rose while gold fell on Thursday.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). Following  an all-time high reached on September 18, the price retreated into early October. After a rocky attempt to rebound, the price plummeted into mid-October. Roller coaster moves on Wednesday and Thursday last week accompanied by heavy trading volume and a high volatility (VIX “fear”) index may have signaled a washout of panicked investors who had been advised by pundits to flee the market. The Tuesday spike rise above the 200-day moving average was most encouraging. After a retreat on Wednesday, the price on Thursday jumped to nearly tickle the 50-day moving average.

   The recent high volatility and trading volume may have heads spinning. Those who become especially dizzy often get flushed out at market lows during Octobers. This may have caused a great many Baby Boomers and their elders fearful for their retirement nest eggs to now be sitting in fixed income investments that pay next to nothing. Those who sold stocks recently may have done so near another typical October market floor. Now they are sitting on a horde of cash that could fuel the usual extended rally during the cooler half of the year. Normally there must be an emotional component to set up a meaningful bottom. Fear of the spread of Ebola might have been that scare factor. That particular concern may be abating as investors now review the parade of corporate earnings reports.

DISCLAIMER: Our commentaries are provided as general information and not investment recommendations. You are responsible for your own investment decisions. Our opinions are based on historical research and data believed to be reliable. There is no guarantee that results will be profitable. We are not responsible for errors or omissions. We may hold positions in vehicles that are mentioned.

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