October a damp squib

OCTOBER'S fearsome reputation as a month of panic, collapse and rapid rebound turned out to be a damp squib. Much beloved of boys' adventures from the 19th century, a damp squib was a small explosive device that failed to explode.

This October's market activity had the same characteristics, but an unexploded bomb still represents a danger.

With the S&P 500, the danger comes in the shape of a head-and-shoulder reversal pattern. This is best observed on a weekly chart. The head-and-shoulder pattern is a reliable signal of a significant trend reversal.