Tuesday, October 7, 2014

Keystone's October Seasonality Factors for Trading the Markets

The cool Autumn days of October are here as Keystone dreams of fresh pumpkin pie with cinnamon sprinkles. October is the notorious month that congers up images of market crashes and panic leading to the Wall Street adage, "The October Effect." This effect is simply the perception that the market tends to do poorly in October.  Notable dates include; The Panic of 1907 occurring in October, "Black Thursday" on 10/24/29, "Black Monday" on 10/28/29, "Black Tuesday" on 10/30/29 and "Black Monday" on 10/19/87, where the Dow Industrials dropped -23% in one day!

Returning to the seasonality aspects, the broad markets are up about 0.2% for the month of October, flatish, nothing to write home about but definitely not a large negative number which would be assumed considering the crashes and bad connotations that come with October. September logs a down month which was expected seasonality-wise although 2012 and 2013 went against the seasonality printing gains.

Technology and biotechnology sectors typically do well in Q4 (October-November-December) but both sectors have already ran a long way to bubble levels. Stocks are typically up +4.3% in Q4. October is typically not a good month for small caps (RUT) stocks. Many traders try to position themselves in tech during September and October to take advantage of the seasonality strength. The Fed and other central bankers, however, have distorted markets and destroyed price discovery which lessens the expected influences of seasonality factors and patterns.

October is the last month of the weak May thru October trading season. The largest gains in the market (on the long side) are made between November and April. This year as in recent years, due to central banker intervention, the stock market moves higher in the May to October period knocking down the ole adage, "Sell in May and go away." The central banker money printing is powerful making the wealthy wealthier with huge stock market gains.

Gold is typically buoyant from August thru October with the India and China holiday events and marriage seasons on tap. Gold printed in the 1180's one day ago and has bounced back above 1200. Diamonds, however, are gaining in popularity challenging gold as a gift selection. The coming Diwali "festival of lights" in India (10/22/14; 10/23/14) typically marks a pull back for gold. Typically a peak in oil prices will occur in October; bad news for long oil traders considering the recent slump in oil due to robust supply and weaker global demand. Oil may have peaked early this year. Interestingly, the turmoil in 
Syria, Iraq, Libya, Egypt and Middle East and Northern African oil-producing regions in general are not increasing the fear premium in oil. Gasoline prices are usually at their lows in the fourth quarter and prices at US pumps continue to fall as oil price falls.

The results from the back-to-school sales help to project the holiday season sales and the school sales were lackluster. The Retail Federation, however, projects a +4.1% increase in holiday sales this year. Watch for any indication of early sales since this will indicate trouble ahead for retail stocks since they are having difficulty moving merchandise.

Typically, market buoyancy occurs early October as the new quarter begins, from the last day of the old month through the first 4 days of the new month, with new money being put to work. The first day of October resulted in a sell off but markets place a near-term bottom and recover the last three days as would be expected due to seasonality. A full moon occurs early morning 10/8/14, tomorrow, and equities are typically bullish moving through the full moon. The new moon is 10/23/14 in the afternoon and markets are typically bearish moving through the new moon. OpEx is Friday, 10/17/14 so Monday, 10/13/14, would be expected to be bullish. Also, a Tuesday low (10/14/14) typically leads to a Wednesday high (10/15/14) during OpEx week. The SPX is typically up the final couple days of October and Halloween, 10/31/14, marks the last trading day of the month on a Friday. 

The ECB Rate Decision and Press Conference was 10/2/14; the BOE Decision is 10/8/14. The Jobs Report was 10/3/14 and next jobs report is 11/7/14 after the mid-term elections. Columbus Day is 10/13/14 but markets remain open. The Eid al Adha Muslim holiday took place over the weekend 10/3/14 through 10/5/14.

On the esoteric side, a Bradley turn date occurs on 10/7/14, today, identifying a window through 10/14/14 for a market trend change to occur. Another Bradley turn date rapidly follows on 10/16/14 which creates a window from 10/9/14 through 10/23/14 for a market trend change so the windows overlap. Thus, the Bradley's are forecasting some choppy moves in stocks this month. Keystone's Eclipse Indicator targeted the 9/1/14 through 9/29/14 time period as having potential for a major market top. So far the call was dead-on as market topped out on 9/19/14. The entire time period now through mid December is susceptible to equity selling and a second eclipse window is targeted for 11/3/14 through 11/28/14 where markets may peak and a large selloff may occur, however, the drop from the September top may take much of the negative energy out of the picture for the November time frame.

Thus, mixing the seasonality factors together and sprinkling magic dust on it all, the expected seasonality patterns should push stocks higher into Thursday, 10/9/14. Monday, 10/13/14, would be expected to be a positive day. A Tuesday, 10/14/14 low should lead to a Wednesday, 10/15/14, high. Stocks may be weak from 10/21/14 into the last week of the month and then stocks should finish the last couple days of the month bullish say 10/29/14 through 10/31/14. The Bradley turns should create choppy markets in October. Remember, seasonality factors should be viewed simply as an underlying market current. Picture yourself in a stock market canoe on a calm day. Without paddling, the stock market canoe will drift in the direction of the seasonality factors.

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