NEW YORK (TheStreet) -- The last week of October was something else. Heavy fiscal year-end selling for mutual funds seemed to put a damper on good news and push stocks and commodities lower.
October is historically a tough month on the U.S. market with mutual funds locking in profits on their books.
Below are some charts showing my analysis on gold, silver, oil, natural gas and the S&P 500 index along with a seasonality chart proving that October has more selling pressure than other months.
As you can see from the chart below we appear to be in the middle of a pivot low correction which can make for some great entry points. The trend is up, gold is oversold and it looks like we had a reversal low last week.
This is a chart I posted a couple months ago and so far silver has traded within the trend lines and support and resistance levels I pointed out in early August. Silver still looks bullish as it is trading at a pivot low.
Gold mining stocks appear to be trading near the bottom of the trend channel. The odds are still pointing to higher prices.
This chart of the
United States Oil Fund
is also from a recent post in early October. USO broke out and is now trading at our support trend lines. There was a nice reversal candle last week but the heavy selling across the entire market pulled oil back down.
Pivot trading low could be close for the
United States Natural Gas Fund
The daily chart is telling me we saw the bottom in natural gas back in September as prices collapsed washing out most long (bullish) traders. I figure we will see prices trade between $9 to $12 for several months as the commodity forms a base.
The broad market looks and feels oversold. This chart uses Andrews Pitchfork analysis to show where short-term pullbacks to the middle trend line (middle of trading range) have been a buying opportunity.
Deeper corrections drop to the bottom support trend channel. These corrections sometimes form a lower low and lower high that scares traders and investors out of the market before heading higher.
S&P 500 Seasonality Chart
This chart shows the performance for each month over the past 37 years. Simple analysis shows selling pressure in September and October as mutual funds sell positions to lock in gains for their books each year.
This move is generally compounded because seasoned traders know about this seasonal movement and also sell positions and even short the market to take advantage of this at times.
I think we are in line for a perfect storm going into year end. The market is trading at a pivot low from many different analysis theories. This forms a high probability trading opportunity in the next two months if we see prices reverse and start heading higher this month.
A lot of stocks have taken a real beating this past month as sell orders flooded the trading desks last week. The beating technology, financials and small-cap stocks took is the worst. The sharp drop is not really what we wanted to see but it makes good sense. With those groups posting the largest gains since March it is only normal that money will be coming out of those stocks to lock in gains.
Many traders are starting to panic about another possible market melt-down. This negative sentiment is a bullish indicator for higher prices. If everyone is scared and exiting their positions, we must be close to trading a pivot low.
I am still bullish on the market and will be looking for new opportunities if we see prices start to head higher this month.
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Chris Vermeulen is Founder of the popular trading sites www.thegoldandoilguy.com and www.ActiveTradingPartners.com . There he shares his highly successful, low-risk trading method. Since 2001 Chris has been a leader in teaching others to skillfully trade in gold, silver, oil, and stocks in both bull and bear markets. Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return.