October is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, December, August, and February.
— Mark Twain
Mark Twain was right, sort of. October, which starts tomorrow, is historically one of the worst months to trade stocks, but in the last 10 years has been profitable. September sucks, as it did this year.But now we are moving into the market’s winter, and data going back 316 years demonstrates that the winter is generally profitable. The summer, by comparison, is a bummer.
By some counts, September 30 is the worst day of the year to be long equities. The S&P500 is down 62% of the time on September 30. The rest of the month is no bargain either. The 38th, 39th and 40th weeks of the year – all in September – are the worst of the year, going back to 1950.
Sounds about tight. But is it true?
There are all sorts of superstitions traders repeat about seasonal bias in the stock market. Sell in May and go away. The Santa Claus Rally. The Halloween Bump. The first of January Barometer. The 53-day cycle. The bullish bias of years ending in 5. And more, much much more. Is any of this true?
Some of it is. A pair of researchers in New Zealand, Ben Jacobsen and Cherry Y. Zhang from Massey University, conducted a a monumental study by that tracked stock market gains and losses in 108 countries going back more than three centuries.
Their conclusion: every market, everywhere, is better in winter, defined as November 1 to April 30, than in summer, May 1 to October 30. It doesn’t work every year, but worldwide, over any reasonably long period of time, winter averages gains of 2.46 per cent or more; winter averages losses of 0.96 per cent.
If you want to look at a shorter period and just US markets, from 1999 to 2012 winter returned profits of 6.36 per cent; summer had losses of 1.27 per cent.
Is that enough to keep you out of the market until the end of October? It shouldn’t be. US equities in recent years have done better than average in October. But the absolutely best month to be long US equities is December. Santa really does come to town every year.
The monthly options expire at the close this afternoon, and yesterday the S&P500 mini-futures (ES) spent the day battling around the 1875 line, which is a significant strike price for option players. The outcome was a doji that closed almost exactly where it opened, but traded through 28 points. Lots of action, no progress.
That indicates indecision about the next move. There is a bearish A-B-C correction in play. But for the short term the market is heavily oversold and that may well result in an oversold bounce, perhaps up into the 1900-1915 zone.
Just don’t confuse a bounce with a recovery. We’re still bearish for the immediate future.
This article was originally published at TraderPlanet.com on September 30, 2015