Two Key Dates Will Reveal U.S. Stock Market’s Fate

Frustrated, puzzled and concerned about this sinking stock market? Hang on. It is in an important two-week period that should provide better understanding about where stocks are headed.

The two key dates are Friday, September 30, and Friday, October 7. The closing stock price levels of the market indexes should reveal the U.S. stock market’s health and direction.

Why just those Fridays?

Because the intra-week, daily trading provides more volatility noise than helpful information. However, that daily activity tends to cease by Friday’s close because the weekend means two days of potential news with no market activity. In other words, risk without a chance of doing something about it.

Why these two Fridays?

Because last Friday (September 23) saw all the major U.S. stock market indexes simultaneously close at an important, “technical” (meaning chart) level: A potential “double bottom.” Each index’s Friday close matched its June low Friday close as shown in this weekly graph…

That’s where these two current weeks come in. They should show whether that important double bottom move is indicative of a new bull run-up or a confirmation of worse to come.

Why not just one week? Because one week’s close can be misleading – even dramatically so. Many “powerful” one-week moves have been reversed the following week.

The possible scenarios:

First, the big negative. Might as well start here, since everything we read is negative now. That would be two weeks of lower closes. The reading would be that the double bottom didn’t hold, so the downtrend continues.

Second, the big positive. With this week already starting down, a reversal upwards, confirmed by the second week closing above the double bottom low.

Third, a potential positive. Like the second scenario, with a reversal. However, the second week close is only at or near the double bottom low. It would indicate that the current lower levels didn’t hold, but it would not yet indicate an upwards move.

But isn’t technical analysis (chart-reading) less important than fundamental analysis?

It depends on the stock market environment. Right now, the many moving and uncertain fundamentals create differing conclusions. By examining the actual price moves, we can get a measure of what Wall Street is thinking and doing.

Stock market indicators are often contrarian indicators. When they are popular and widely noted, they come up short. But when they are ignored or dismissed, they can be prescient. Such is the situation now with the “double bottom” indicator.

There is virtually no interest today in the double bottom indicator. Use this search phrase – “stock market” “double bottom” – for news. Sort by date, and only two recent articles appear (other recent ones deal with specific stocks):

Fortune (Thursday, 9/22)

FortuneThe stock market may be in a “double bottom” pattern-but here’s why that’s good news for your portfolio

MarketWatch – Mark Hulbert (Wednesday, 9/21, updated Saturday, 9/24)

MarketWatchIf the market passes this upcoming test, stocks will be poised to move higher. We’re not there yet.

What is notable about each is that their conclusions are wishy-washy – Yes, there is a double bottom, but it may not be useful. Now, with this week’s lower prices, any interest in the double bottom indicator has likely evaporated. However, that dismissive attitude allows us to give it large weight – if the next two weeks provide a positive signal.

The bottom line: Today’s widespread negativity makes the stock market ripe for a surprise run-up

It’s a rule: When “everyone” is bearish, it’s time to own stocks. The simple rationale is that, regardless of the negative fundamentals, the sold-off stock prices offer a good opportunity.