History Says 15% Chance of 8-11% Decline Right Now

Today (Wednesday) I am excited to head to New York City for a day full of media (and a tiny bit of shopping). My first stop is with the good folks at Yahoo Finance to create two or three segments on what’s hot now. I know for sure we will do one on market bubbles which should be controversial and interesting. I imagine there will be one about the bull market or Fed and then one on the hot story of the day, like today’s thrashing in the stock market. It’s always a good time to visit Jeff Macke.
From there I head to the New York Stock Exchange for a 3:45pm interview on CNBC’s Closing Bell. After all these years, I am still wowed when I visit the floor. Finally, I am thrilled to join Fox Business’ Making Money with Charles Payne for a whole hour from 6pm to 7pm. Sometime in between, I hope to buy a suit which I am told that I desperately need.

The short-term picture remains murky for the next few weeks, but looking out beyond that, markets should regain their solid footing and march higher later this quarter. October has a reputation of being a bad month for stocks. Most people recall the great crash of 1929, crash of 1987, mini crash of 1989, crash of 1997, crash of 1998 and Lehman collapse of 2008, which all occurred in October. Keep in mind that some macro news event usually was given the credit (or blame) for causing the decline, isn’t that always the case? In a vacuum, October looks like a very scary month, but that would be a big mistake!

Taking a wider view, you realize that in almost every case above, stocks were already in decline before October began. The month actually acted as an accelerator rather than an initiator. Furthermore, October was most often a turning point for stocks in that declines continued into October, bottomed mid to late month and then a significant rally began. You would be hard pressed to find many examples of times when October did not see at least an interim low.

Given that stocks peaked last month, I went back and researched how the market behaved in the fourth quarter after a new high in September. The results may surprise you!

Since the bull market began in 2009, the only significant Q4 decline was in 2012, -8%, or 1/5 times(20%).

Since 2000, besides 2012, 2007 was the only other year. The Dow peaked in October and declined 11%. That’s 2/14 or 14% of the time.

There were no Q4 declines from a September or October peak in all of the 1990s! Read that line over again.

1989 saw the mini crash of 9% from an October peak and 1980 had a very unusual 10% from a November peak.

Since 1980, there five significant Q4 declines from a high or just 15% of the time.

So here we are on October 7, having seen a September new high peak heading into Q4. History says there is a 15% chance of 8-11% decline from the September Dow high of 17,280. If this is one of those times, the Dow is looking at a possible downside range of 15,379 to 15,898. Anything else on the downside would be a 35+ year precedent setter. 

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CNBC’s Squawk Box Wednesday @ 6:20am

I am going to be on CNBC’s Squawk Box on Wednesday (11/21) at 6:20am discussing the Fiscal Cliff, our forecast to year-end and the potential for recession. After that, I hope to have a Street$marts to you by the end of the day.

Just in case I don’t, I wish you and your family a very happy Thanksgiving!

Paul

CNBC’s Closing Bell TODAY at 3pm est

I am going to be on CNBC’s Closing Bell with Bill and Maria at 3:00pm est today discussing the market’s path over the rest of the summer and how “quiet” it has become as earnings season really cranks up this week.  Almost every article, tv segment and conversation about earnings has been so negative that it seems like much has been priced into the stock market.  Could a small upside surprise lie ahead? 

This lack of significant volatility is typical of election year summers (except for 2008), but that should change after the conventions later this summer.

Stocks Slide on Tepid Jobs Growth Number

On Friday’s CNBC segment, I spoke about the range bound market with the potential for a fall swoon before the election.  But in any market, there are always opportunities and this time is no different.

http://video.cnbc.com/gallery/?video=3000101361&play=1

So far this week, stocks have not behaved well, but it’s far from a rout and the trading range continues. On Wednesday, we get a peak at the minutes from the Fed meeting and folks will take any scrap of comments that leads to QE3 coming.  As I have said since QE1 was launched, we will see QE2, 3, 4, 5 with the Fed’s balance sheet approaching $5 trillion.

CNBC’s Closing Bell at 3:00pm TODAY

I am going to be on CNBC’s Closing Bell with Bill & Maria today at 3pm discussing the less than positive jobs report as well as the harsh market reaction and the potential response from Bernanke & Co.

As soon as I finish wrapping up my quarterly report to clients, I will publish the next Street$marts with some comments on the European Central Bank’s recent action and what the Supreme Court’s ruling on ObamaCare means for the economy and markets.

Have a great weekend!

Paul

CNBC’s Closing Bell TODAY at 4:10pm

I am going to be on with Maria and Bill at 4:10pm today discussing ethics versus business on Wall Street in the face of Facebook’s epic bust.  Now that should make for interesting conversation!

CNBC’s Closing Bell

I am going to be on CNBC’s Closing Bell with Maria & Bill at 3:10pm today discussing (defending) why I am the only treasury bond bull left on earth!