Halloween scare has already come

I assume everyone living in the North America knows Halloween tradition. In the US, it is on Oct 31 every year when the Halloween ghosts will come out to scare people. When our son was young, this was one of his favorite days each year. But beyond ghost stories and gory films, October is often a scary month for investors.  As I have said many times, October tends to be the worst month of the year for the stock market and many major crashes somehow often happened during October. Still don't believe it? Let's see a few examples, dating back to the famous 1929 Great Depression:  

• The Crash of 1929 began in October...
• Black Monday was October 19, 1987...
• The minicrash of October 1989 was on Friday the 13th... 
• The markets endured another minicrash on October 27, 1997...
• October 2007 marked the beginning of the financial crisis... 
• And last year October?  We saw the third-largest one-day drop in history for the Dow Jones Industrial Average.

Ouch!!
It seems we have already started to see the Halloween ghosts coming out and wandering this October. You see, we have already seen 1+% daily declines a couple of times even though we are just in the second week of the October. The extreme volatility has made virtually everyone nervous or even panicky. The AAII investor sentiment weekly report has just shown that this week's investor's mood has been really depressing, 44% bearish vs only 20% bullish. This is the same scale of bearishness we saw back in Dec 2018!


So we are seeing the scary market gyrations this month. And unfortunately we probably will see more scary selloffs in the remaining 3 weeks time. Of course, I don't mean it will be a straight line down. Instead,  in between severe plunges, we will likely see some mini to gigantic rebound (like "the rip your face off" rally I called upon late Dec last year). We have seen such kind of "short squeeze" type of plunge and rally this week. The first two days of the week were brutal for the market with stock prices spiraling down. The sentiment was accordingly depressing and most people were on the short side. On my way to the airport in the early morning (Russia time around 5 AM) of Wed, I sent a note to my friends, expecting a rebound any moment within a day or two. Well, the market shot up all day long when I was in the air, followed by another very strong bull run yesterday. Today's further rally is pushing the market towards the oversold territory. At its highs, S&P shot up 52 points to 2993 but cooled off at the closing by "just gaining 32 points". So, it is not at the extreme end yet and we may see some further buying pressure in the days ahead. But folks, we are still in the ghost month and the official Halloween day has not yet come. Any such strong rally will not likely last for long. Instead, we will probably see another more severe plunge after the "short squeeze" rally runs its course.


I'm closely watching the TA indicators and will be trying to spot the extreme conditions for shorting opportunities in the next two weeks. For most people, it will be better to take whatever gains you may have got if you are lucky enough for the short term trading in the past few days. Don't be greedy to try for your maximal gains. More importantly, it is not the time to chase highs regardless how strong the current rally may feel like. It will be a bull trap again. Be cautious!!