In the interest of always giving the people what they want I have prepared the following statistical and market analyses. My good friend and insightful Chicago futures pit boss Danny “Mr. Top Step” Riley emailed over the weekend asking for my outlook for October and a yearend call on the S&P. He probed, “will the markets get past this troubled period.”
Earlier last week on Monday, when I posted on the Dow’s Down Friday/Down Monday stats one of our followers, Andy Dillon, inquired if we had statistics on the equivalent data for NASDAQ Down Friday-Down Mondays (DF-DM). Of course we do. Today’s market decline makes it two DF-DM in a row and the fourth in the last eight weeks for the Dow. A cluster like this of DF-DM after suffering only two others the rest of the year is all the more troubling. Here are the stats for the NAS.
Today’s NASDAQ loss has triggered the fifth DF-DM of the year and the third in the last 6 weeks. In the nearly fourteen years since 2000, there have been 173 DF/DM. In all but 7, NASDAQ was lower sometime in the 90 calendar days following the DF-DM. Declines have averaged 10.6%. Since the bottom in March 2009, the subsequent decline has been milder, averaging 6.3%.
On the eve of another potential government shutdown over another budget impasse with debt ceiling and Affordable Care act battles bubbling up on the front burners as well, t my outlook for October is a bit less sanguine than it was a week ago.
As a card-carrying Almanactarian, it should come as no surprise that I come in to the month of October with an admittedly negative bias due the month’s penchant for big surprises to the downside. However, as you all may remember, though the month is often frightful for stocks it has also brought many treats to traders and investors alike. In fact, we like to call it the “bear killer” and it is historically the seasonally best time to buy stocks, especially small caps and techs.
So bearing mind the above comments on the second DJIA DF-DM in two weeks and four in the last eight (3 in the last 6 for NASDAQ), yes, the market will get past this troubled period, but likely with more of mark than it had in September. If D.C. fails to keep the government open and the political gamesmanship drags on we may end up in a full-fledged bear sooner than later. The more likely course is a short-term patch deal and a 5-10% correction along the lines of the action we experienced in August followed by a yearend rally that stalls at the recent high with the S&P finishing the year in the low 1700s. Then this whole political brouhaha heats up again in early 2014 when the midterm election rhetoric cranks up and we may end up with a real bear market.