Keystone's October Seasonality Factors for Trading the Markets

The cool Autumn days of October are here as Keystone dreams of fresh pumpkin pie.  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, last month, was an up month, just like 2012, which is uncharacteristic since September is typically a very bad month for stocks. Traders, however, are complacent during September, loaded on the bull side and not worried, sipping the Fed wine each day, although the markets topped and turned lower at mid-month.

Technology and biotechnology sectors typically do well in Q4 (October-November-December) but both sectors have already ran a long ways. The IBB clearly illustrates a Biotech Bubble now in place ready to pop.  The quarter, Q4, is typically up 4.3%. October is not typically 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.  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 is an outlier since the markets continue to be pumped non-stop by the Fed's and other central banker's crack cocaine easy money.

Gold is typically buoyant from August thru October with the India and China holiday events and marriage seasons on tap. Diamonds, however, are now gaining in popularity. The coming Diwali season of lights in India typically marks a pull back for gold. Typically a peak in oil prices will occur in October. This would be in line with the ongoing global weakness now occurring but the Syria, Egypt and Middle East and Northern African oil-producing regions are erupting in turmoil, which will resist the negative seasonality. Gasoline prices are usually at their lows in the fourth quarter. The SPX is typically up the final couple days of October. The results from the back-to-school sales help to project the holiday season sales and the school sales were lackluster. Look for any indication that retail stores are starting to announce sales early since that would signal difficulty in moving merchandise and trouble for the retail sector.

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 ECB Rate Decision and Press Conference was 10/2/13 and Draghi did not make any changes to the 0.5% rate. The Jobs Report was scheduled for today, 10/4/13, but the government shutdown causes a delay in the data.   Columbus Day is 10/14/13 but markets remain open.  The Eid al Adha Muslim holiday is 10/15/13. A Bradley turn date occurs on 10/8/13 which identifies now through 10/15/13 as a window for a major market trend change.  Another major Bradley turn date is 11/3/13 which opens a window from 10/28/13 thorugh 11/8/13 coinciding with the FOMC meeting and perhaps the next 'QE tapering' decision. The new moon is today, 10/4/13, at 8:35 PM EST, and equities are typically weak moving through the new moon. The full moon is 10/18/13 and markets would be expected to be bullish through this date.  Keystone's Eclipse Indicator targets the period now through 10/10/13 as a target area for a large market selloff to begin; the SPX already falling 60 handles from 1730 to the 1670 intraday low yesterday.  The entire time period now through mid December is susceptible to equity selling and a second eclipse window is targeted for 11/12/13 through 12/10/13 where a large selloff may occur.

The U.S. government is in shutdown mode currently.  The Debt Ceiling Limit hits on 10/17/13 according to current estimates but the date should be pushed forward since the government shutdown saves money.  OpEx week is the week of 10/14/13 so Monday is typically bullish and the period from a Tuesday low into a Wednesday high (10/15 into 10/16). OpEx Friday is 10/18/13 so markets will tend to move in the opposite direction of Friday come Monday, 10/21. The FOMC Rate Decision and comments on QE tapering occur 10/30/13.  The final days of October tend to favor the bulls, 10/29 thru 10/31. Halloween is 10/31/13.  Boo!