Since our Best Six Months Seasonal MACD Buy Signal on October 4, stocks declined for six straight days coming into today’s reversal. While this is disconcerting, it is important to remember that our Best Months + MACD Timing system and strategy are not designed to pick exact bottoms and tops. Frankly, we don’t know of any market timing system that can do that consistently.
But what it is designed to do, and has done over the past seven decades, is to capture the bulk of the market’s rallies and avoid the bulk of the market’s downturns. It’s not perfect, but this year it began to get us out of harm’s way in early April. Nevertheless, it is important to remember to invest and trade within your own individual risk/return profile, to be diversified and nimble during these volatile times.
Whether today’s snapback rally marks the bear market’s low or we find bottom over the next few weeks, Octoberphobia has surely delivered. The fact that October has delivered its usual hazards and wild swings is encouraging. The seasonal patterns and 4-year cycle patterns we have been tracking and reporting on will likely continue to play out according to historical trends. This would culminate in a bear market low sometime near the end of October.
Wherever the ultimate low ends up, by our analysis the end of the bear market is nigh. The market has been down substantially this year, while we have been mostly in cash and on the sidelines. October has been the best month to buy stocks. It is a notorious bear-killer. I will leave you will leave with these two points: More bears have ended in October than any other month and the Best Six Months starting in November of Midterm years are up 18-0 since 1950.
Not all indices have bottomed on the same day for all bear markets, but the lion’s share, or bear’s share I should say, bottomed in October. Of the 23 bear markets since WWII 8 have bottomed in October for DJIA and 7 for S&P 500, 6 for NASDAQ, significantly more than any other month. Over all three indices, 7 were in midterm Octobers: 1946, 1960, 1966, 1974, 1990, 1998 & 2002.
DJIA October bottoms: 1946, 1957, 1960, 1966, 1987, 1990, 2002 & 2011. S&P October bottoms: 1957, 1960, 1966, 1974, 1990, 2002 & 2011. NASDAQ October bottoms: 1974, 1987, 1990, 1998, 2002 & 2011. The month with the next largest amount of bear market lows is March with 4 for S&P 500 – mostly recently in 2009 and 2020, previously in 1978 & 1980.
Since 1950 the Best Six Months has its best performance from November of the Midterm year to April of the Pre-Election year, by a factor of three. And none of the other years of the 4-year cycle had zero losses.
December and February have been the weak spots with January and April leading the charge. From the October close to the April close BSM beginning in Midterm years gains 15.2% on average, up 18 down 0. Post-Election BSM: Average 3.1%, 11-8. Pre-Election BSM 4.6, 13-5. Election BSM: 5.3%, 14-4. Adding in the MACD timing indicator only improves the results slightly.
Stick to our buy limits and honor the stop losses. By this time next year, the Fed will likely be done hiking rates, inflation will likely be coming down and the market is likely to be considerably higher.