The idea: Month-end candle signals are important for me, so I like to spend some time at the first of the month looking at monthly charts for the key indexes and sectors. Monthly charts iron out the intraday noise, and leave you with what’s important in the stock market, namely where a stock or index closes at the end of the day compared to where it was at the start.

The set-up: For the past two years, people have predicted the end of the bull market, gloom and doom but, in all of the important indices and most of the important sectors, we’re still interested in buying more stocks and pushing the market higher.

What’s strong: On Nov. 1, I looked at the monthly charts for the SPY (SPDR S&P 500 ETF Trust), the Nasdaq, the IWM (iShares Russell 2000 Index ETF) and the DIA (SPDR Dow Jones Industrial Average ETF, aka “Diamonds”). None of those charts say anything except that this market is continuing to go up. I’m seeing bullish monthly signals around the world. Even Canada — one of the last major markets to even start to participate — hit brand-spanking-new highs in October.

What’s mixed: Consumer staples aren’t off enough to call them bearish, but they’re looking to the downside. In a defensive market, consumer staples are the safety stocks people want to buy, names like Johnson & Johnson (JNJ), Kellogg Co. (K), The Coca-Cola Co. (KO), Procter & Gamble Co. (PG). But consumer discretionary stocks are looking very bullish — Netflix Inc. (NFLX), Wynn Resorts Ltd. (WYNN) — and homebuilders are on fire.

That tells me there’s still more risk to the upside than the downside with the average investor; people are buying stocks they think are on the move, representing money we can spend because we want to. Staples are more the “need” stocks; people are going for the “want” stocks.

What’s worth watching: The only fly in the ointment that I see here is the IYT (iShares Dow Jones Transportation Average ETF), which in my world is one of the important sectors to watch on a monthly basis. IYT was the only such sector to post a lower close last month than the month before. It wasn’t a high-volume down month, but a little bit of a shooting-star candle. Dow Theory says that transports must continue to move with the market, so in November I’ll need to see how the transports compare to other indexes. That’s the only negative divergence I see on a monthly basis.

The last word: The monthly candles right now tell me that we’ve had some fistfights and jumping around, but the close — what really matters — has been positive. The candles look green. I’ve got transports marked as a little bit of a negative, but all that does is make me pay attention.


Petra Hess runs PetraPicks.com. She is a technical swing trader and long-term investor in domestic and Canadian stocks and ETFs.

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Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

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