Tasked with dragging the U.S. stock market higher all by itself, Google could not quite get the job done yesterday. Although the stock ended the session with a nearly $15 gain, preventing Nasdaq-based indexes from falling, the Industrial Average went its separate way, closing with a 78-point loss. Given that the stock market’s illusion of strength is all that is keeping the U.S. economy from going over the edge, it would be difficult to overestimate the importance of Google’s continuing bluster. For, as long as Google shares remain capable of vaulting $15 in a day, the Nasdaq indices of which the stock is a key component cannot get hurt too badly. And as long as the Nasdaq can’t get hurt too badly, it will be that much harder for the Dow and S&P to trigger off an avalanche

That is not to say that the broad averages can’t continue to rack up appalling breadth divergences. That’s a particularly worrisome technical aspect of the current bull cycle, and it is only going to get worse as fewer and fewer stocks participate in increasingly ginned-up rallies. But because it takes only a handful of ebullient stocks to ward off a complete meltdown, the danger of this occurring will remain lower than if there were no tech-sector mirage to focus on.

Even so, bulls could hardly be thrilled with yesterday’s broad weakness, since it occurred with positive cyclical influences almost at red-line. We are referring to the October-November transition period, about which our colleague Jason Goepfert of SentimenTrader.com recently had this to say: ‘�we’ll [soon] be heading into a period of notable seasonality which is remarkably positive. Holding the S&P 500 during the last three days of October through the first three days of November has given a positive return during every one of the past 12 years in the S&P 500 tracking fund, SPY. The 100% winning trades returned an average of +3.3%, with an average drawdown (i.e. maximum loss) of only -0.7% compared to an average maximum gain of +3.6%.”

Dueling Cycles

So why did the Dow fall 78 points anyway? Who knows. Perhaps it would have fallen by 300 points if ’seasonals’ had not been so bullish? Or maybe the October/November ‘transition effect’ acted as an offset to a powerfully bearish cycle that has seen stocks collapse like clockwork during Octobers in years that end in 7? Whatever the case, our gut feeling is that too many bears were counting too heavily on an October sell-off for it to happen. But even if they’ve been disappointed, they seem less eager each day to cover short positions. Granted, put-buying picked up in the final hours yesterday, and that is bullish for the very near-term. But if the expected news concerning more Fed easing this morning doesn’t make shorts scramble for cover, then we had better get ready to dive.

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SEMINAR SOLD OUT, BUT�

Seats for this weekend’s online Hidden Pivot seminar are sold out, but if you are interested in attending the class at a later date, click here and I’ll let you know when the next session is scheduled — probably in December or January. If you would prefer to attend an on-site class, possible venues in 2008 include Vancouver, Boca Raton and San Francisco. Please let me know if you’d be likely to come to the seminar if it were held in one of those cities