Stock Trader's Almanac: 'Octoberphobia' May Be a Figment of Investors' Imaginations

Thursday, 26 Sep 2013 09:30 AM

By John Morgan

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If 'Octoberphobia' strikes and investors flee the stock market, it could be a major buying opportunity, according to Stock Trader's Almanac's Jeffrey Hirsch, editor in chief, and Christopher Mistal, research analyst.

The duo said the pivotal fall month, one that is often feared by Wall Street professionals looking to protect their year-to-date gains, really does have a "dreadful history of market crashes" such as those in 1929, 1987 and 2008, plus smaller meltdowns in 1997, 1978 and 1979.

"It's no wonder that the term 'Octoberphobia' has been used to describe the phenomenon of major market drops occurring during the month," they wrote in a blog on the Almanac website.

Editor’s Note:
New Video: Obama Plans to Redistribute Seniors’ Wealth

But Hirsch and Mistal said October has also been a "bear killer" on occasion, and that 12 post-World War II bear markets have ended during that month.

Their prediction: "Should a meaningful decline materialize in October, it is likely to be an excellent buying opportunity, especially for any depressed technology and small-cap shares."

Todd Harrison, founder and CEO of Minyanville Media, said the stock market took a big spill in 2011 when Congress and the White House were at loggerheads over deficit and budget shortfalls, as they are again now. Will history repeat itself?

"Time will tell, but it's worth noting that much of the buying the last few weeks was short covering, which removes a forward layer of demand," he wrote in a column.

"Indeed, this market is setting up for a pretty significant showdown into year-end, with performance anxiety-ridden fund managers on one side (ready to chase the tape higher) and late-to-the-party bulls (and their attendant pain tolerance) on the other."

The Wall Street Journal's Steve Russolillo said on Twitter that lack of direction in the stock market has sent investors headed for the exits.

"Dash for Cash: Money-market funds, proxy for cash, hit $2.66T this month, highest since February," he tweeted.

Barry James, president and CEO of James Investment Research Inc., told The Journal he has increased his cash position to its highest level since 2008.

"We don't like cash. It doesn't do anything for us," he said. "But we also don't want to lose money in bonds and we want lower volatility."

Editor’s Note: New Video: Obama Plans to Redistribute Seniors’ Wealth

Related Stories:

Bogle: Record High Stock Market Levels Are Not a Red Flag

Roubini: Time to Be 'Overweight' US Equities

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