Bracing for a bearish trend in October

FILM adaptions of Stephen King’s horror stories do it best. In the darkness of the cinema, the audience waits for the inevitable terrifying moment. The longer the film goes, the more nervous they become. Ready to be scared, they can only wait, seemingly forever, with bated breath until finally – horror.

This is a Stephen King-horror market. September was supposed to deliver horror, but it has not. Now, investors wait for the true and inevitable horror of October when a bear trend has historically shaken markets.

By almost any measure, the US market rise appears unstoppable. Technical indicators have been flashing over-bought for weeks, but this is the nature of these oscillator-style indicators. They show a mathematical peak that is created by numerical calculation rather than by reference to the broader range of market factors.

The only certain conclusion is that at some point this uptrend will come to an end. That is a statement so bland that it is useless for any investment decision making. Instead, investors and traders must rely on more exact signals of a change in trend, and from there, calculate the potential support and rebound points.

The weekly chart of the Dow shows the relevant uptrend starting in April 2025. The position of the trend line was confirmed in August, and created the second anchor point for the trend line. The recent Dow activity provides the third anchor point.

The trend line describes how the market is moving. A close below this trend is a warning signal that the uptrend is weakening and that a new downtrend may develop.

Every year, the market collapses in October, and this is seen in a sharp fall below the trend line, followed by a rapid rebound.

The target levels are defined by the trading bands created by support and resistance levels. On the upside, this gives a target near 48,480. On the downside, the immediate support level is near 44,470. A more severe market dip finds support near 42,100. These are the levels where aggressive traders will enter the market in anticipation of a fast rebound and resumption of the uptrend.

The October bear has a particular US focus but the impacts flow across international markets. Some analysts suggest that the China market is already weak, and that any October ruction in the US will be fatal to the Shanghai Index. There is certainly room for a reaction when the market resumes trading after the Golden Week holiday in October. However, this is not usually enough to change the trend behaviour.

The daily chart shows the upward momentum of the Shanghai Index has stalled against resistance near 3,888. The market has retreated and is testing trend line A as a support feature. The combination of the resistance level and trend line A creates an inflection point. A breakout above this level has a target near 4,100. This is calculated by projecting the width of the trading band defined by the horizontal support and resistance lines.

A break below trend line A has support near 3,700, and this defines the potential downside target.

The two upsloping trend lines converge early in 2026. They form an upsloping wedge, which is generally considered to be bearish. However the date of convergence is many months away so they exert little influence on current market activity.

The consolidation strength of the Shanghai Index suggests China has little to fear from any October-bear dip in the Dow. Any China bear is driven by different relationships on the index chart because it would signal a collapse of consolidation or, at best, an expansion of the consolidation range to between 3,700 and 3,888.

But investors cannot ignore the potential horror story in the US. With no leading technical signals, investors must be ready to react quickly if a bearish trend ensues.