Stock Market

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Monday Morning Outlook
By Christopher Johnson


The major indices took a few direct hits last week as inflation fears reverberated through stocks, sending investors into sell mode. While the initial damage assessment is being called a buying opportunity by some, the truth may be that the market is just gearing up for what could be another turbulent October, as technicals, sentiment, and fundamentals meet to challenge the market.

Actually, the technical damage may not be all that bad. Though the S&P 500 (SPX – 1,195.90) closed the week below its 10-month moving average (it hasn't closed a month below this trendline since September 2004), the Nasdaq Composite (COMP – 2,090.4) and Russell 2000 (RUT – 644.33) closed just above their 10-months. The Dow Jones Industrial Average (INDU – 10,292.3) wasn't as fortunate, as it dipped below its 10-month and 20-month moving averages, signaling that the Dow is in much need of some support to avoid falling back into what we consider bear market territory. The Dow hasn't been a stranger to sub-20-month territory, having posted two monthly closes below this important trendline since April 2005. With these monthly moving averages showing signs of rolling over into downtrends, the pressure is mounting against the Dow to avoid an all-out long-term bearish trend.