BER months Bear months what does the fourth quarter hold for stocks?

Well, here it is for us served on a plate.  The complete opposite of Greed: FEAR.  Fear has gripped the markets, and even simple speeches by President Obama or by the American Federal Reserve is not ignored, and get massive selldowns as a response.

Numbers put out by websites like davemanuel point out that historically, steep descent usually occurs during September, and a bottom is put out during October.

Five Largest One Day Point Losses:

1. 2008-09-29 -777.68 points
2. 2008-10-15 -733.08 points
3. 2001-09-17 -684.81 points
4. 2008-12-01 -679.95 points
5. 2008-10-09 -678.91 points

Five Worst Single Month Performances (in points)

2008-10, -1525.65 points
1998-08, -1344.22 points
2008-06, -1288.31 points
2001-09, -1102.19 points
2002-09, -1071.57 points

Five Worst Single Month Performances (in %)

1931-09, -30.70%
1932-04, -23.68%
1938-03, -23.67%
1987-10, -23.22%
1940-05, -21.70%

There are a number of theories on why is September such a bad month.

Many mutual funds have their fiscal year-ends in September, which could help to contribute to the selling pressure as they exit undesirable positions.  Or, maybe it’s investors selling their positions in front of a month that they perceive to be harsh on market returns (October).

The 1929 and 1987 CRASHES are prominent examples in investors’ minds, but there have also been numerous other October devastation, including the 550-point Dow drop in 1997, the 1998 Russian Ruble/Long-Term Capital Management debacle, and, of course, last year’s acceleration of financial panic from late September.

But as we know, the market is a contrary animal, and it’s succeeding in that respect once again.  As it turns out, October’s history is nearly the exact opposite of what most investors believe!

Since 1958, October is actually the sixth-best month, right in the middle of the pack, with a 0.9% average gain for the S&P 500.  (For the record, September and February are the two worst months of the year, on average.)  Sixty percent of all Octobers have finished on the positive side of the ledger.

From current point of oversold conditions, we still have room for a technical bounce, or call it dead cat bounce, before setting a low or double bottom come October.  Just in time perhaps for the markets to absorb a reality of Greece defaulting.

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