October has historically been one of the most volatile months of the year and has the potential for significant action again this year.

The bull market that started last November has been looking tired lately but still has not relented. In September, stocks defied historical weakness as deals between the White House and congressional Democrats helped to ease the risk US domestic political turmoil could spill over into the economy. The Dow Transports led the way upward, gaining 5.9% as fuel prices came back down to normal with hurricane effects subsiding. The Dow Industrials rose 1.7% while the S&P 500 gained 3.2% during the month.

The NASDAQ, however, only rose 0.1%, setting the stage for a potentially volatile earnings season. Earlier in the year, a small group of big technology stocks outperformed the rest of the market but have started to show signs of technical exhaustion.  Apple and Netflix have recently shown additional cracks of fundamental weakness. With expectations and valuations running really high, how traders react to results could have a big impact on sentiment through the end of the year. Netflix reports after the close on October 16 followed by Apple on the 24th. The Super Bowl of tech earnings is on the 26th when Google, Amazon.com, Microsoft and Intel are all scheduled to report results.

The worst performing US index in September was the Dow Utilities which fell 3.4% indicating a growing expectation that US interest rates may continue to rise later this year and on through 2018. The Fed and the Bank of Japan meet again right at the end of the month. In the case of the Fed, traders may look for more hints toward whether a December rate hike is still on the table or not. The Bank of Canada has indicated it’s taking a break after two consecutive rate hikes.

This month’s ECB meeting may attract the most attention as the central bank is widely expected to outline plans for resuming QE tapering. If it puts that announcement off to December it could be seen as dovish.

ECB news is one of several potential developments that could potentially make October a really active month for Euro trading. The month kicks off with Spain’s Catalonia region scheduled to hold an independence referendum which could add to political uncertainty following German Chancellor Merkel’s poor showing in the recent German election. Spain’s federal government is trying to stamp out the vote, and trying to arrest separatist leaders so it remains to be seen if the vote will be held or which side will win.

The Euro and Sterling may both be active around the mid-month EU Summit, which is expected to decide if enough progress has been made on the first round of Brexit negotiations, the Brexit bill and divorce settlement, to move on to the next round, shaping their future trade relationship. Talks to date have not proceeded very far but UK PM May’s recent speech outlining openness to a transition period was well received.  

The other big mid-month meeting is China’s National Communist Party Congress, which is held once every five years. This meeting could bring significant policy or personnel changes that could impact trading in commodities and currencies.

The fourth round of NAFTA talks is also being held in October. Reports suggest that the Americans may use home field advantage to get a lot tougher on a number of contentious issues this time around. Comments, reports and results could have a more significant impact on trading in CAD and MXN this time around.

My September predictions turned out mixed. My bearish EURGBP call was a spectacular success, exceeding expectations falling from 0.9299 through my 0.9000 forecast and on toward 0.8760, a 5.7% drop in a month which is big for a currency pair. My bullish natural gas call did okay, rising to $3.02 from a $2.92 starting point but its intra-month high of $3.16 was short of my $3.30 forecast. My bearish call on the S&P 500 didn't work out with the index rising toward 2,500 instead of falling below 2,400.

 

Three interesting markets for October 2017

Index NASDAQ 100 Current Price 5,921 1 month forecast 5,675

After staging a strong advance through the first half of 2017, the NASDAQ has levelled off in a 5,750 to 6,000 trading range in recent months. Although higher lows forming an ascending triangle indicate ongoing accumulation, trouble signs have appeared with a double top forming and the RSI showing momentum starting to turn downward. Initial support could appear near 5,835 the September low, 5,750 the August low, or 5,670 a common 23% retracement of the previous uptrend.

 

Commodity Gasoline     Current Price $1.68  1 month forecast $1.35

In September, gasoline only gave back part of a big August spike and remains vulnerable heading into a weaker time of year for gasoline demand. The price has broken under its 50-day average and the RSI has fallen under 50 to confirm momentum turning downward. The price fell back from $1.88 toward $1.68, but it remains well above the $1.55 August low and the $1.40 July low, let alone the $1.30 level near where autumn selloffs found support in each of the last three year

 

Currency EURUSD  Current Price $1.1788 1 month forecast $1.1600

The Euro has been turning increasingly downward since completing a head and shoulders top in late September. The pair has also broken down below its 50-day moving average, while resistance has dropped from $1.2000 toward $1.1800. An RSI below 50 and falling confirms increasing downward pressure. Next potential support appears near $1.1680 a 23% retracement of its previous uptrend, then $1.1600 based on a measured move from the topping pattern the $1.1500 round number and $1.1425 a 38% retracement level.

 

Commodity Outlook

Historically a rebound month, September was a mixed and volatile month for many commodity markets. The 20 commodities I follow were split 50-50 in terms of gains and losses but with a 0.7% average decline. The worst performers in September were Gasoline which fell 23.0% as hurricane disruptions subsided, Sugar, which fell 8.9% and Platinum, which fell 7.6%. The top performers were Wheat which rallied 10.5%, Oats which gained 10.3% and WTI crude oil which popped 9.8%. Overall, the month was very split for energy commodities, moderately split for softs, great for grains and poor for metals.

My forecasts were also mixed. Gasoline popped from $1.72 to $2.14 in the last four days of August, then turned downward sharply to finish near $1.65. This was a win on my bearish call but it didn’t quite achieve my $1.55 downward objective (which remains possible in October).  Silver started out well, rallying up from $17.45, but it peaked near $18.20 just short of my $18.65 upside forecast, then kicked into reverse and tumbled back down toward $16.85 by the end of the month.

October has historically been a split month for commodities with half of the 20 markets I follow posting average gains and half posting average losses. It’s historically a down month for metals and a down month for energy with the exception of natural gas which often rallies ahead of heating season. October has historically been a moderately positive month for grains and softs. Top October performers in the past include: Natural Gas, Orange Juice, Cotton and Arabica Coffee. Historically poor October performers include: Gasoline, WTI crude oil, US Cocoa and Heating Oil. 

 

Best Commodity Natural Gas  Current price $3.01 one-month forecast $3.40   

Bloomberg Symbol NG

Natural gas actually fell 2.6% in September, a historically seasonally stronger month of the year for that market. Between a rainy summer and unusually hot September in natural gas consuming regions, it seems like the weather is running a couple of months late this year. Based on this, the August-September seasonal rally we didn’t really get this year could be bumped to October-November. Since bottoming out near $2.70 in July, natural gas has been steadily trending upward with upward momentum increasing as the price regains the $3.00 round number. Next potential resistance near $3.15, $3.30 and $3.45 on trend.

 

Worst Commodity Robusta Coffee   Current Price 2000 one-month forecast 1865   

Bloomberg Symbol DF

October has historically a down month for Robusta Coffee, marking the middle of its seasonally weak period which runs from July through December. Robusta recently ran into resistance near 2,050 and has rolled over, breaking down below 2,000 to signal the start of a new downswing. RSI falling away from 50 confirms momentum turning increasingly downward. Next potential support near 1,930, a Fibonacci cluster near 1,900 and the May low near 1,865.

 

Key Dates for October  2017

October 1                    Spain Catalonia independence referendum

October 2                    Australia RBA meeting

October 6                    US nonfarm payrolls

October 11-15             Fourth round of NAFTA renegotiations

October 16                  Netflix earnings

October 18-24             China Communist Party National Congress

October 18                  China Q3 GDP

October 19-20             EU leaders summit (decision on Brexit talks)

October 24                  Apple earnings

October 25                  Bank of Canada meeting

October 25                  Facebook earnings

October 26                  ECB meeting

October 26                  Amazon.com, Google, Intel and Microsoft earnings

October 27                  US Q3 GDP

October 30                  Bank of Japan meeting

Oct 31 – Nov 1            FOMC meeting

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