By Jeffrey Hirsch
Stock Trader's
Almanac Investor Newsletter
October has become the time to buy. Over the last nine years the once feared month of crashes has moved beyond its mantle of bear killer to the best performing month. Since 1998 October has been the top month for the Dow, S&P and Nasdaq, sporting average gains of 4.1%, 3.6% and 5.1% respectively. There have been only two losing Octobers the last nine years, 2004 and 2005 for the Dow and 2000 and 2005 for the S&P and Nasdaq.
Small caps are slightly different story. The Russell 200 index of small caps has been up seven of the last nine years as well with a 2.4% average gain, but November is best for the R2K, up eight of nine for an average advance of 4.0%. This supports our contention that late October is a great time to buy small caps, especially those that are selling at depressed levels.
In the Strategy Calendar on page 16 is a remainder that October is the end of the "Worst Six Months" and "Worst Four Months." However, some of our recent research reveals that this pattern may be shifting or at least that the best months may be expanding and the worst months shrinking.
October's improved performance in recent years and several July-September lows or rallying points lends to credence to this observation. Historical and seasonal patterns have served us well, but we have always been aware of an open to the ever-changing dynamic of these cycles and regulated many to "indicator graveyard" over the years. Case in point, August was once the best month from 1901 to 1951; now it's the worst for the Dow and S&P since 1988.
We may be "celebrating" the 20th Anniversary of the 1987 Crash and be reminded of 1929 and other October market demises, but there is plenty to be bullish about. Nine officials bullish days this month temper the five bears. After two strong days open the month, four of the next six are unfavorable days on our market probability calendar. On Monday of options expiration week the Dow has been up 23 of the 27 years and seven straight. Expiration day has been weaker, down three of the last four.
Editor's Note: Jeffrey Hirsch is editor of the Stock Trader's Almanac Investor Newsletter, published by Wiley Company, 111 River St., Hoboken, NJ 07030, 1 year, 12 issues, $299. For more information visit www.stocktradersalmanac.com.
