The stock indexes all closed higher on Friday, led by the Dow Jones Industrial Average, which finished up 165 points. The S&P 500 gained 17 points while the Nasdaq powered ahead by 43 points.  The Russell 2000 gained nearly 14 points. The S&P 500 Trust Series ETF volume traded 103 million shares.

The DJIA was the only index that closed in the red in September, losing 94.44 points.  The DJIA tried hard for a strong finale and was nearly green at one point on Friday for the month. Otherwise, the major indexes finished as follows:

  • The Nasdaq was the big winner in September, closing higher by 110 points to finish at 5323.  
  • The S&P 500 gained 3.75 points for the month to close at 2175.
  • The Russell 2000 also closed higher for the month.

As we begin October, the DJIA, S&P 500, and Nasdaq will all be overbought on the monthly time frame with a green open.  What is significant The last time those indexes were overbought on a monthly time frame was December 2013.

The DJIA also closed the third quarter on Friday and was higher for the fourth consecutive quarter. This is a possible warning sign of a downturn as markets move forward. The last time the market rose four consecutive quarters was in 2013 and before that, it was a period extending from the middle of 2010 to the middle of 201. 

The probabilities of having a fifth green quarter for the DJIA are not very high.

See the quarterly chart for the DJIA that clearly shows this phenomena.

The second quadrant below the price action also shows a negative divergence.  As the DJIA price action continues higher, the SST Strategic Numbers are heading lower.

There is an old saying on Wall Street that a top in the stock market is not a point but a process that has formed.  Perhaps that is what is currently occurring.

Thus, caution is warranted as the markets head toward the end of 2016.  Today's stock market action appears to be all window dressing.  With the monthly overbought condition in the stock indexes and extended quarterly price action, do not be surprised if the coming quarter shows some serious selloff.

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.