This article presents research from the Stock Trader’s Almanac that indicate a bad market in October leads to strong market returns in the following months. I don’t put a lot of weight in these statistical and data mining efforts. But it’s an interesting presentation and one to factor into your strategy.
Despite horrific happenings in 1929, 1987 and 2008, October is more of a bear-killer than a bull trap. Hirsch’s father, Yale Hirsch, started writing about the “best six months” strategy in 1986, noting how the November-through-April period had delivered the majority of the market’s gains, while the May-through-October period was a net drag on returns. History bears out the idea. Imagine two investors, each with $10,000, who started investing in the Dow Jones Industrial Average in 1950–one exclusively in the May-October period and the other exclusively in the November-April period (each 100% in cash for the six months not in the market). Over the next 68 years, the May-October investor would have gains of $1,031, while the November-April investor would have profits totaling $1,008,721.