Reversal looks important, and could extend 10-15%

Q4 got underway with a welcome 2%+ gain for the Bulls on very strong Advance/Decline data which should help prices extend in the days ahead.   Nine sectors rose more than 2% while over four etched out 3%+ gains which looks constructive during a time when Equities are due to carve out an initial trading low.  While many rightly require additional technical improvement before weighing in positive, my thinking has more to do with sentiment and cycles than a true change of technical structure at the very bottom of a decline.  Overall, I think that the risk/reward certainly favors betting on an above-average bounce in the “Bear Killer” month of October, and upside gains should be likely as part of a bearish downtrend which might very well reach 3890 initially and then possibly 3953 before any backing and filling.  While October certainly could prove volatile, the odds favor good performance in mid-Term Election year Octobers with average gains at +1.0% vs. average October gains of +0.3%.  Bottom line, I like playing for this advance to extend, regardless of if some “pieces of the puzzle” might not be completely in line.   I’m betting that markets are higher between now and year-end, and Monday’s bounce should allow this week to produce a good trading low with any further downside likely proving limited for now given such rampant pessimism and oversold conditions.

Reasons why Markets should bottom out and rally in Q4  

I’ve discussed in recent weeks why October is important, and why the first part of this October particularly stands out as having a heightened chance of a reversal.  Today was likely an important first step to this process.

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