November Outlook: Best Months Begin With November By: Jeffrey A. Hirsch & Christopher Mistal | October 29, 2020 | Email | Print

November begins the Best Six Months for the Dow and S&P 500 and NASDAQ’s Best Eight Months. It is also the start of the year’s Best Three-Month Span November-January. Seasonal October volatility has been exacerbated by Presidential election uncertainty and the rapid rise of covid-19 cases worldwide. But this is setting up very well for our Seasonal MACD Buy Signal.

 

When it triggers we will email all subscribers an Alert with instructions on closing out our Bond ETF positons and redeploying into Dow, S&P, NASDAQ and Russell 2000 ETFs. The criteria to issue our Seasonal MACD Buy Signal is a new buy signal using our 8-17-9 MACD indicator on or after the first trading day of October and DJIA, S&P 500 and NASDAQ must be in agreement. After we get the Seasonal MACD Buy Signal Trigger we will put out a new basket of our top stocks poised to capitalize on our Best Months Strategies.

 

As you can see in the charts below of the Dow, S&P and NASDAQ our MACD Buy Indicators have been heading below the zero line. Crossover buy signals below the zero line have generally provided better buying opportunities. 

 

 

 

October’s market weakness and volatility is actually an encouraging sign for us. While it may be painful to investors and unnerving at times, to us it signifies a return to more normal seasonal market behavior, which sets up the Best Months for solid gains. Updating the chart we presented last month of S&P 500 for 2020 (right axis) overlaid on the One-Year Seasonal Pattern since 1950 and 1988 (left axis) underscores the return of market seasonality. 

 

September and October weakness this year closely mirrors the historical pattern over the past 70-year and 32-year timeframes. S&P also appears to be making a classic late-October low. This October low has not breached the September low so far and if the low on October 28 holds it forms a slightly higher-low uptrend line of support.

 

 

As for handicapping the election, our pal Sam Stovall’s August-October Market “Presidential Predictor” was in the red yesterday until today’s rally put it back in the black. If the S&P closes below its July 31 close of 3271.12 tomorrow that would not be a great sign for an incumbent presidential party win. 

 

Since 1936 when the S&P 500 is up from the July 31 close to the October 31 close in election years the incumbent party wins 85% of the time (11 of 13). When the S&P is down over this three-month span the party in control of the White House has changed 88% of the time (7 of 8).

 

Two misses were likely due to significant third-party candidates derailing reelections in 1968 (Wallace) and 1980 (Anderson). Eisenhower was reelected in 1956 despite the bear market caused by the Suez Crisis/Sinai War in October-November 1956 and Soviet tanks rolling into Hungary to quell the revolution in October 1956.

 

Keep your eye open for our MACD Buy Signal and be leery of election decision delays, congressional inability to pass another stimulus package and a continued rise in covid-19 cases, hospitalizations and deaths that could increase restrictions and weigh on the market. We anticipating some attractive stocks will appear in our new basket. Pay close attention our buy limits and stop losses on all stock and ETF recommendations. 

 

 

September’s pullback abruptly ended late month with a brisk rally that lasted until just before mid-October. Since then, Octoberphobia took over and DJIA shed 8% from its closing high through yesterday’s close. During the surge higher DJIA reclaimed its 50-day moving average briefly and has since receded back below it (1). DJIA has also closed below its September closing low. The longer this breach of support persists, the more likely it is that more weakness is yet to come.

 

Late-September strength delayed our Seasonal MACD Buy signal as the last positive crossover was in September, not October. Recent weakness has turned the faster moving MACD Buy indicator to negative (2) and it is currently trending lower back through the zero line. Crossovers below the zero line have frequently been good buying opportunities. The current situation is setting up in this manner which is encouraging. The slower moving MACD indicator is also negative at this time. Market jitters are likely to persist until a victor is declared in the Presidential election. 

 

 

Following four straight weekly DJIA losses in September, DJIA did enjoy three straight weeks of gains to start off October. However, that streak came to an end last week with DJIA recording its eighth Down Friday/Down Monday (DF/DM) warning of 2020 (3). The election and surging covid-19 cases are key sources of uncertainty and anxiety that could easily spur traders and investors to take profits and increase cash allocations. The longer it takes DJIA to reclaim levels prior to the DF/DM, the likelihood of further weakness also increases.

 

S&P 500 (4) and NASDAQ (5) have also been struggling, tracking out essentially the same pattern as DJIA over the last two months. NASDAQ is the best-performing index of this year, but even that strength has faded. Technology earnings coming up later today could be a catalyst for shares to turn around, but they will likely need to be blow out numbers to shake off election and covid-19 uncertainty.

 

Market breadth measured by NYSE Weekly Advancers and NYSE Weekly Decliners (6) was the first to suggest weakness was brewing behind the gains of the major indexes. DJIA, S&P 500 and NASDAQ all recorded modest weekly gains during the week ending October 16 while NYSE Weekly Decliners outnumbered Advancers by nearly 2 to 1. Weekly Advancers outnumbering Weekly Decliners while major indexes are rising is an indication of broad-based participation and those rallies tend to be more sustainable. 

 

Absent a breakout to new all-time highs, Weekly New Highs (7) and New Lows have remained rather range bound. New Lows did briefly jump above 100 in late September as New Highs fell below 100, but that was quickly reversed in the first half of October. This week is likely to see New Highs tumble again and a modest jump in new lows.

 

As stocks were climbing in early October, the 30-year Treasury rate was also climbing (8). At 1.62% last week, that was the highest since the end of February. Historically this is still low, but when compared to the lows of early August it is a rather noticeable increase that could begin to trickle into the housing market. Gains in housing this year have aided the recovery.