October Monthly Review

Whew! October is finally over and despite its spooky reputation, we managed to escape pretty much unscathed. Since the month is over, we're going to take a series of progressively larger views to try and figure out what to expect next month.

Let's start by zooming in on the last few days of the action in the Dow, which proved to be most interesting. Yesterday, I called an end to the uptrend and started a new descending RTC line. Here is is. You can see that today's action took us to the right edge of the channel, since it's so steep, but I wouldn't really call it a bullish setup. Conceivably, Monday could mark the end of this short downtrend and in fact, today's narrow range doji suggests further indecision. However, I think we remain inside this new downtrend for the time being. I note also that historically, the first trading day of November is not so hot.

Pulling out to the weekly chart, this week's downturn barely registers and the whole week simply forms a doji candle, but that in iself, coupled with the highly overbought readings on all the indicators is enough to suggest a reversal. Compare the recent runup to the one last spring. There's a striking similarity there. So if the daily chart suggests the possibility of a limited downside, the weekly chart looks considerably weaker.

And since today also marks the end of the month, we might as well look at the monthly chart. As a swing trader I don't do this very often, but it can be quite instructive for strategic planning. Check it out:

Here's four whole years of the Dow, a month at a time. The whole sickening slide from the 2007 highs to the March 2009 lows and the bounce back. In this view, the troubles of the summer of 2010 look more like a stumble than a bear market and the indicators aren't overbought at all. This longer term view suggests considerable upside remains in the market. Note also that we will soon be entering a pre-presidential election year and that these historically significantly outperform other years in the four year election cycle.

So where does this all leave us? I'll be looking for a limited decline on Monday and Tuesday in anticipation of the election. I'm still betting we'll see a gain on Wednesday based on election results that may be given up by the end of the week. But I think the month as a whole will end higher. November is traditionally a good month and I'm not hearing enough bad economic news to warrant any major declines at this point. We'll see.

Performance

The Dow ended up today a paltry 4.5 points. I was down 0.12% on the day, down 0.09% on the week but still up a respectable 1.32% on the month, compared to the Dow's 3.04% gain for the month. Though it's disappointing to have underperformed the Dow on a monthly basis, this still leaves me 21.82% up YTD, compared to the Dow which is up only 6.62%, so I can't complain. My little low price/high yield sub-portfolio continues to do well, gaining from 0.22% to 2.57% today, with the exception of AOD that lost 0.71%. However, all are still in a profit position, even though I'm only owning them for the dividend.

Today, I added a new name to it: DHY, Credit Suisse High Yield Bond Fund, buying an experimental 200 shares at 2.94. It closed at 2.92. It's trading at the lower end of its recent range and looks poised to go higher next week. It is currently yielding an attractive 10.89%.

I did not take any short positions today but I'm also holding cash in reserve. I see a number of names that are becoming more attractive lately, but not enough to pull the trigger just yet. And I'm wishing I'd execercised a bit more patience and held on to my AUY from the beginning of hte week. Oh well.