October has a dreadful history of market crashes such as in 1929, 1987, the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989 and the 733-point drop on October 15, 2008. During the week ending October 10, 2008, DJIA lost 1,874.19 points (18.2%), the worst weekly decline in our database going back to 1901, in point and percentage terms. It is no wonder that the term “Octoberphobia” has been used to describe the phenomenon of major market drops occurring during the month. Market calamities can become a self-fulfilling prophecy, so stay on the lookout and don’t get whipsawed if it happens.
But October has become a turnaround month—a “bear killer” if you will. Twelve post-WWII bear markets have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002 and 2011 (S&P 500 declined 19.4%). Eight were midterm bottoms. Current market weakness, the first 10% correction in nearly four years, could be setting up October 2015 to be another “turn-around” month. History does suggest a down August followed by a down September has preceded a robust fourth quarter for the S&P 500.
Options expiration week in October provides plenty of opportunity. On the Monday before expiration the DJIA has only been down six times since 1982 and the Russell 2000 is up twenty of the last twenty-five years, seventeen straight from 1990 to 2006. Expiration day has a spotty record as does the week as a whole. After a market bottom in October, the week after options expiration is most bullish; otherwise it is susceptible to downdrafts.
Pre-election year Octobers are ranked dead last for DJIA (since 1951), NASDAQ (since 1971), and Russell 2000 (since 1979); second worst for S&P 500 (since 1951). Eliminating gruesome 1987 from the calculation only provides a moderate amount of relief. Should a meaningful decline materialize in October it is likely to be an excellent buying opportunity, especially for depressed technology and small-cap shares.
Since 1991, October, the first month of the fourth quarter has improved substantially, climbing to fourth best DJIA month with an average gain of 1.6%. It’s the third best S&P 500 month (+1.6%) AND second best for NASDAQ (+2.3%). Russell 2000 has not seen as much improvement with October climbing to #8. October’s typical performance appears in the next chart over the recent 21-year span 1994 to 2014. On average, early month weakness has proven to be an excellent buying opportunity, especially for NASDAQ (purple line) as early losses were quickly recouped leading to an average gain of over 3% from early month lows to the close.
![[Typical October Trading 1994-2014]](/UploadedImage/AIN_1015_20150924_Oct_seasonal.jpg)
October is also the end of the DJIA and S&P 500 “Worst 6 Months” and NASDAQ “Worst 4 Months”. Remain on the alert for our Seasonal MACD Buy Signal that can occur anytime on or after October 1. An email Alert will be issued when it triggers. At that time we may establish new long positions in SPDR DJIA (DIA), SPDR S&P 500 (SPY), PowerShares QQQ (QQQ) and iShares Russell 2000 (IWM). We may also pickup any remaining open recommendations from the ETF Portfolio.
| October (1950-2014) |
| |
DJI |
SP500 |
NASDAQ |
Russell
1K |
Russell 2K |
| Rank |
|
7 |
|
7 |
|
8 |
|
7 |
|
10 |
| #
Up |
|
39 |
|
39 |
|
24 |
|
23 |
|
20 |
| #
Down |
|
26 |
|
26 |
|
20 |
|
13 |
|
16 |
| Average
% |
|
0.5 |
|
0.8 |
|
0.6 |
|
0.9 |
|
-0.3 |
| 4-Year Presidential Election Cycle Performance
by % |
| Post-Election |
|
0.7 |
|
0.9 |
|
1.2 |
|
0.8 |
|
0.2 |
| Mid-Term |
|
3.1 |
|
3.3 |
|
4.2 |
|
4.7 |
|
3.9 |
| Pre-Election |
|
-1.0 |
|
-0.4 |
|
-0.8 |
|
-0.6 |
|
-2.7 |
| Election |
|
-0.8 |
|
-0.7 |
|
-2.1 |
|
-1.4 |
|
-2.6 |
| Best & Worst October by % |
| Best |
1982 |
10.7 |
1974 |
16.3 |
1974 |
17.2 |
1982 |
11.3 |
2011 |
15.0 |
| Worst |
1987 |
-23.2 |
1987 |
-21.8 |
1987 |
-27.2 |
1987 |
-21.9 |
1987 |
-30.8 |
| October Weeks by % |
| Best |
10/11/74 |
12.6 |
10/11/74 |
14.1 |
10/31/08 |
10.9 |
10/31/08 |
10.8 |
10/31/08 |
14.1 |
| Worst |
10/10/08 |
-18.2 |
10/10/08 |
-18.2 |
10/23/87 |
-19.2 |
10/10/08 |
-18.2 |
10/23/87 |
-20.4 |
| October Days by % |
| Best |
10/13/08 |
11.1 |
10/13/08 |
11.6 |
10/13/08 |
11.8 |
10/13/08 |
11.7 |
10/13/08 |
9.3 |
| Worst |
10/19/87 |
-22.6 |
10/19/87 |
-20.5 |
10/19/87 |
-11.4 |
10/19/87 |
-19.0 |
10/19/87 |
-12.5 |
| First Trading Day of Expiration Week: 1990-2014 |
| #Up-#Down |
|
20-5 |
|
18-7 |
|
17-8 |
|
19-6 |
|
20-5 |
| Streak |
|
D1 |
|
D1 |
|
D1 |
|
D1 |
|
D1 |
| Avg
% |
|
0.7 |
|
0.7 |
|
0.7 |
|
0.7 |
|
0.6 |
| Options Expiration Day: 1990-2014 |
| #Up-#Down |
|
12-13 |
|
16-9 |
|
16-9 |
|
16-9 |
|
12-13 |
| Streak |
|
U2 |
|
U2 |
|
U2 |
|
U2 |
|
D1 |
| Avg
% |
|
-0.1 |
|
-0.02 |
|
-0.001 |
|
-0.01 |
|
-0.06 |
| Options Expiration Week: 1990-2014 |
| #Up-#Down |
|
17-8 |
|
17-8 |
|
13-12 |
|
17-8 |
|
14-11 |
| Streak |
|
D1 |
|
D1 |
|
D1 |
|
D1 |
|
U2 |
| Avg
% |
|
0.7 |
|
0.8 |
|
1.1 |
|
0.9 |
|
0.7 |
| Week After Options Expiration: 1990-2014 |
| #Up-#Down |
|
15-10 |
|
13-12 |
|
14-11 |
|
13-12 |
|
13-12 |
| Streak |
|
U2 |
|
U2 |
|
U2 |
|
U2 |
|
U2 |
| Avg
% |
|
0.3 |
|
0.2 |
|
0.3 |
|
0.2 |
|
0.1 |
| October 2015 Bullish Days: Data 1994-2014 |
| |
6,
14, 20, 28, 29 |
6,
14, 16, 19, 20 |
6,
13, 14, 20 |
2,
14, 16, 19, 20 |
6, 13, 14, 20, 30 |
| |
|
22,
29, 30 |
29,
30 |
22,
29, 30 |
|
| October 2015 Bearish Days: Data 1994-2014 |
| |
7,
8, 12, 21, 26 |
7,
8, 12, 26 |
1,
26 |
8,
12, 26 |
7, 8, 26 |
| |
|
|
|
|
|