No Market Crash In October… Blue Skies Ahead?

| October 25, 2010 | 0 Comments

October’s nearly over and we haven’t had a market crash.  So far so good.  Not that I’m expecting a crash.  I just tend to worry a little more during this fine autumn month.

And with good reason…

Many a market plunge has happened in October.

The Great Crash of 1929 started in late October.  On Black Monday and Black Tuesday (Oct. 28th-29th), the Dow plummeted more than 20%.

When all was said and done, the market had fallen a mind-boggling 90% from its 1929 peak.

Another example is the Crash of 1987.  On Black Monday (Oct. 19th), the Dow tanked a hair-raising 22%.  It was the largest one-day percentage decline in market history.

Amazingly, the Dow actually finished 1987 with a slight gain.

These are the two most famous October crashes.  But there have been other market meltdowns in October.  Who can forget the famous 550 point Dow drop in 1997?  And of course we all remember how the market decline of 2008 accelerated in October.

All together, these events feed the myth of October being the month of catastrophic market crashes.

The funny thing is October’s really not as gloomy as you think…

The legendary market crashes give October a bad rap.

But the truth is… October has more often marked the end of bear markets.  According to Stock Trader’s Almanac, 11 bear markets since the end of World War II have ended in October.

And since 1950, October has more often seen the Dow post a gain than a loss.  Over the last 59 years, the Dow has finished October with a gain 35 times.  In other words, the Dow has posted a gain in October 59% of the time.

Clearly, October is not as bad for the markets as most believe.

So, what does this mean for the market going forward?

There are conflicting opinions…

On the one hand, the market’s been surging higher for over a month and a half.  This remarkable rally could be getting long in the tooth.  Maybe the time is right for a decline.

On the other hand, we have a couple of major catalysts driving the market higher.

A second dose of quantitative easing from the Fed appears to be a foregone conclusion.  This is an extremely bullish catalyst for the market. Remember, the first round of quantitative easing drove the market on its record run from March 2009 to May 2010.

And let’s not forget about the November mid-term elections.

Historically, the mid-term elections have been a major bullish force on the markets.  According to the Wall Street Journal, “the Dow has gained an average of 17.1% in the year following a mid-term election.”

Given the strength of the recent rally, the Fed’s quantitative easing, and the mid-term elections, I think the bull market continues well into 2011. You may want to widen your stops a bit and let your winners run.  And use any pullbacks to establish new positions or add to existing ones.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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