“Although the bulls slipped again last week, September was a month to remember as the market rallied 4%, on average. The indexes failed to make a run at our fluff targets but came close. If there is a pullback or correction, these fluff targets could become yearend targets depending on how much damage the bears do.
For the month, the Dow was up 347 points or 2.6% while the S&P 500 gained 34 points, or 2.4%. The Nasdaq popped 50 points higher, or 1.6%. For the third quarter, the Dow was up 4.3%, the S&P 500 was higher by 5.8%. The Nasdaq popped 6.2% for 3Q.
We warned on Tuesday that the market had its first Friday/ Monday negative close in 6 weeks and Friday’s drop is cause for concern. The trading range over the summer provided up and down Friday and Monday’s which is typical but if we get a lower Monday a trend change could be coming.
We have one more week before earnings season starts and the laundry list of companies that have already pre-warned include: Caterpillar (CAT, $86.04, down $0.88), Dow Chemical (DOW, $28.96, down $0.20), FedEx (FDX, $84.62, down $1.15), Ford (F, $9.86, down $0.16), Procter & Gamble (PG, $69.36, up $0.06), Norfolk Southern (NSC, $63.63, down $0.55) and U.S. Steel (X, $19.07, down $0.24).
Perhaps the bar has been lowered enough, again, that the companies that do beat estimates could prop the market up in October. Our feeling is there could be a slew of companies that miss by a penny or two which is why they didn’t warn Wall Street. If it’s more than that, the market could take a serious hit. Alcoa (AA, $8.86, down $0.13) will be the first Dow component to announce and they will confess on October 9. If shares are up this week, they could have a good quarter in store. If shares trade lower, it could be a warning sign.
October has a history of famous stock market “crashes” so we did some research over the weekend. Believe it or not, September is technically the worst month for stocks but October is more remembered because of scary Halloween’s and the “Black” days.
There are a few investors who may remember the first stock market crash back in 1929 and we were just a teenager when the market tanked in the 80′s which gave us an early lesson in life. The message was not to ever take the market for granted because in one day things can go south in a hurry. It is why we have always respected the bears and why we learned how to short stocks and how to use put options before we ever invested.
In 1929, the Dow dropped 11% intraday on October 24 falling from 305 the previous day before recovering to end the session down only 2%. The day was labeled “Black Thursday”. Four days later, “Black Tuesday” marked the start of the Great Depression as the Dow dropped 11% from a previous close of 260 to 230.
These two days were significant as the Dow tanked 25% in four days following Black Tuesday and 90% in 3 years after Black Thursday occurred.
In 1987, we remember October 19 which would become known as “Black Monday”. The Dow was at 2,246 and plummeted nearly 23%, or 508 points, to end the session at 1,738. Many investors took a tremendous hit to their 401K and retirement plans.
We were a teenager in the 1980’s and just getting our feet wet in the market. Although we personally didn’t take a hit because we weren’t in the market in 1987, it taught us a very valuable lesson and that was to respect the bears. It is also why we learned how to short the market and buy put options which served us well before the crash of 2000.
We aren’t ready to go on record to say there will be a “correction” or a crash this month but we have experienced several October storm clouds over the past 25 years and we typically LOVE them. If there is panic, and the market does start to drop like a rock, buying puts will be very lucrative.
We aren’t sure what the Vegas odds would be on a correction but with so many fundamentals looking bearish, it is something to think about. We have defined clear support and resistance targets so if there is a breakdown or breakout, we should get a few warnings signs.” (from 9/30/2012 Weekly Wrap/ Monday Morning Outlook)…
The bulls were held hostage by Spain’s pending bailout for much of the week but managed to push resistance during the morning hours. The bears were in control of the afternoon sessions which lead to choppy trading but the bulls did a good job of holding their gains going into Friday’s Nonfarm Payroll report.
Some were calling Thursday’s pop the Romney Rally, which we coined back in early September, as the bulls were up 1% ahead of the news. Presidential candidate, Mitt Romney did a great job in the Mile High city to get back in the race and he certainly wasn’t the only one questioning Friday’s unemployment rate which came in at 7.8%. (continued…)
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