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The spooky month of October is synonymous with fear. Investors who have been around long enough respect October, not because of Halloween, but because some of the scariest corrections occurred during the month – including the stock market crash of 1987. Later termed “Black Monday”,on October 19th, 1987, US equity markets plummeted by 20% in a single day as program-driven trading models spurred on market panic. Fast forward to 2023, and many investors are having PTSD. Banks are fragile, the Federal Reserve is “hawkish”, and the market has been careening lower for over a month. Is history bound to repeat itself? Below are 5 reasons why this time is different:
“Uptober”, the Bear Market Killer
Many investors paint October with a bearish brush because of their memory of 1987. However, for investors to make informed decisions, it is imperative that they look at a large sample size of data. When looking at the data, investors may be surprised that more markets have bottomed in October than in any other month. According to research by Fundstrat, a whopping 50% of bear markets have ended in October. In other words, investors should keep an open mind.
Seasonality
Historical seasonality trends have been the most accurate predictor of the market’s direction in 2023. Seasonality correctly predicted a September correction. In year three of a Presidential cycle (like we are in now), markets tend to bottom in late October.
Image Source: Ryan Detrick, Carson Research
Safe-Haven Plays are Showing Cracks
Investors often use utilities, discount retailers, and the US Dollar bear markets. The Utilities ETF ((XLU - Free Report) ) dumped 4% this week, discount retailers are steeped in downtrends, and the US Dollar ETF ((UUP - Free Report) ) weekly chart is showing a “gravestone” candle pattern after a near-record euphoric 12-week (in a row) gain – a sign of exhaustion.
Image Source: TradingView
Quality Growth Stocks are Rounding Out Base Structures
Several stocks with significant growth expectations, relative strength, and institutional sponsorship are rounding out fresh price structures and are poking their head above the 50-day moving average. Typically, a new base acts as a launch pad for higher prices. Several bases meet the ideal requirements for a base structure, including five weeks or more of basing and a base depth of no more than 25-35%. Furthermore, investors seem to be reverting to their risk-on mood by reentering the high-flying AI stocks such as Nvidia ((NVDA - Free Report) ), Super Micro Computer ((SMCI - Free Report) ), Palantir ((PLTR - Free Report) ), Rambus ((RMBS - Free Report) ), and Arista Networks ((ANET - Free Report) ).
Image Source: TradingView
If the market is to bottom in October as expected, investors will likely enter high-quality growth names like NVDA that have growth and liquidity that investors cannot find anywhere else on Wall Street.
Image Source: Zacks Investment Research
Fear Hits a Fever Pitch
Sentiment indicators such as the CNN Fear & Greed Index flashed “extreme fear” readings in recent sessions. All else equal, investors should strive to “Be greedy when others are fearful.”
Image Source: CNN
Bottom Line
Investors are often frightened by October. Many are haunted by memories of past crashes, notably Black Monday. However, history illustrates that this time around, it is likely to end differently.
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October: Where Bear Markets go to Die
A Spooky Month
The spooky month of October is synonymous with fear. Investors who have been around long enough respect October, not because of Halloween, but because some of the scariest corrections occurred during the month – including the stock market crash of 1987. Later termed “Black Monday”, on October 19th, 1987, US equity markets plummeted by 20% in a single day as program-driven trading models spurred on market panic. Fast forward to 2023, and many investors are having PTSD. Banks are fragile, the Federal Reserve is “hawkish”, and the market has been careening lower for over a month. Is history bound to repeat itself? Below are 5 reasons why this time is different:
“Uptober”, the Bear Market Killer
Many investors paint October with a bearish brush because of their memory of 1987. However, for investors to make informed decisions, it is imperative that they look at a large sample size of data. When looking at the data, investors may be surprised that more markets have bottomed in October than in any other month. According to research by Fundstrat, a whopping 50% of bear markets have ended in October. In other words, investors should keep an open mind.
Seasonality
Historical seasonality trends have been the most accurate predictor of the market’s direction in 2023. Seasonality correctly predicted a September correction. In year three of a Presidential cycle (like we are in now), markets tend to bottom in late October.
Image Source: Ryan Detrick, Carson Research
Safe-Haven Plays are Showing Cracks
Investors often use utilities, discount retailers, and the US Dollar bear markets. The Utilities ETF ((XLU - Free Report) ) dumped 4% this week, discount retailers are steeped in downtrends, and the US Dollar ETF ((UUP - Free Report) ) weekly chart is showing a “gravestone” candle pattern after a near-record euphoric 12-week (in a row) gain – a sign of exhaustion.
Image Source: TradingView
Quality Growth Stocks are Rounding Out Base Structures
Several stocks with significant growth expectations, relative strength, and institutional sponsorship are rounding out fresh price structures and are poking their head above the 50-day moving average. Typically, a new base acts as a launch pad for higher prices. Several bases meet the ideal requirements for a base structure, including five weeks or more of basing and a base depth of no more than 25-35%. Furthermore, investors seem to be reverting to their risk-on mood by reentering the high-flying AI stocks such as Nvidia ((NVDA - Free Report) ), Super Micro Computer ((SMCI - Free Report) ), Palantir ((PLTR - Free Report) ), Rambus ((RMBS - Free Report) ), and Arista Networks ((ANET - Free Report) ).
Image Source: TradingView
If the market is to bottom in October as expected, investors will likely enter high-quality growth names like NVDA that have growth and liquidity that investors cannot find anywhere else on Wall Street.
Image Source: Zacks Investment Research
Fear Hits a Fever Pitch
Sentiment indicators such as the CNN Fear & Greed Index flashed “extreme fear” readings in recent sessions. All else equal, investors should strive to “Be greedy when others are fearful.”
Image Source: CNN
Bottom Line
Investors are often frightened by October. Many are haunted by memories of past crashes, notably Black Monday. However, history illustrates that this time around, it is likely to end differently.