Stocks face another turbulent week as the third quarter winds down

After recent turbulence, markets are likely to close out the final week of the third quarter with another bout of volatility.

Stocks posted big moves in the past week. First, fears of financial contagion coming from Chinese developer Evergrande sent stocks skidding Monday. Those losses were reversed by Thursday, when the market ripped higher. The S&P 500 and the Dow Jones Industrial Average were positive for the week, while the Nasdaq was flat.

“I think this market turmoil has yet to conclude,” CFRA chief investment strategist Sam Stovall said. “Certainly September is doing what it normally does. It frustrates investors.”

The three major stock indexes are also higher for the third quarter.

Strategists say how the market trades in the coming week may be the most important development, after the wild swings in stocks and also the rapid rise in Treasury yields late in the week. The 10-year rate had shot up to 1.46% by Friday after trading at about 1.31% on Wednesday.

The S&P 500 was down about 1.5% for September.

“We are getting long in the tooth. The technical indicators are pointing to distribution. We’re seeing prices roll over, breadth roll over. You’re seeing sentiment roll over,” Stovall said, noting the market’s breadth needs to improve, and many stocks are trading below their 200-day moving average.

October is a ‘seismic’ month

“I think October will be true to itself, which is a very volatile month. October’s volatility is 36% higher than the average of the other 11 months of the year,” Stovall added. “Volatility is higher and you have a greater number of pullbacks, corrections and bear markets that either start or end in the month. It is a seismic month.”

Wealth management firm Wellington Shields warns that the fact many stocks have fallen below their 200-day moving average is a negative for the market. Just 59% of the stocks on the New York Stock Exchange remain above it, or in an uptrend, according to the firm. The 200-day moving average is the average of the last 200 closing prices of a stock or index, and it’s viewed as a momentum indicator.

“The rule is that when this 200-day number drops from above 80% to below 60%, it usually goes below 30%. Forgetting that, the real point is that while most stocks may be advancing, barely more than half are advancing enough to be in uptrends. With the market just a few percent below its highs, this is a concern,” Wellington said in a note.

What to watch

In the coming week, there are a few key economic reports including including durable goods Monday and ISM manufacturing Friday. There is also personal consumption expenditure data Friday, which the Federal Reserve monitors for its inflation index.

The Federal Reserve will remain a big focus in the week ahead. There will be a host of Fed speakers, including Chairman Jerome Powell, who testifies twice before Congress on the pandemic and the…