Thursday, September 26, 2013

Looking Ahead To October

This is some pretty good information I've come across showing what the best performing sectors have been in the month of October over the past three years...I'm using this and some other research I've put together to strategically position my portfolios so that I can maximize my gains during the month while mainting as least amount of risk as possible.

Best and Worst Sectors
  • Health Care and Telecomm are the only two sectors to average negative returns in October over the last decade
  • Utilities and Financials are the only sectors to rise in October in each of the last 3 years

Daily Diary – Thursday, September 26, 2013

Format: 2013-09-26

Pending Home Sales

Sep 26, 2013 | 10:55 AM EDT
  • Pending home sales are a leading indicator and foreshadow existing-home sales.
August pending home sales declined by 1.6% (month over month) compared to expectations for a 1% decline and a 1.4% drop in July. Activity has declined in four of the last five months (indicating continued rate-sensitivity/-dependency), likely owing to rising mortgage rates and (though housing affordability is still above average) higher home prices.
The year-over-year change has now slowed from +9% in June-July to less than 3% today.
Pending home sales are a leading indicator and foreshadow existing-home sales.
As I wrote yesterday, the question is if and as the economy improves, the Fed will begin to taper and mortgage rates will lift. Can housing withstand a normalization in mortgage rates? Will the Fed combat a lift in mortgage rates by ever-friendlier policy? If so, will inflation expectations lift, in turn pushing up bond rates?
The uncertainty of the answers to these questions should constrain the U.S. stock market (even though in September it has not adversely impacted prices).
Position: None

Stockton on October

Sep 26, 2013 | 10:42 AM EDT
  • BTIG's Katie Stockton delivers some great data on the month.
Some more great data from BTIG's Katie Stockton on the month of October:
  • While October ranks in the top 5 regarding up month frequency, it's in the bottom third of the table in regards to Average Returns. You can thank 1987, 1929 and 2008 for that.
Compared to September (September currently +3.5%)
  • October acts much better after positive September returns
  • The worse September does, the less often October is able to produce positive returns
Compared to Q3 (Q3 currently +5.1%)
  • When Q3 acts very well, October often provides a respite for the market
  • Conversely, after an extreme down Q3, October, on average, sees a bounce of over 1.5%
Compared to YTD (YTD currently +15.7%)
  • When the year is up or down greater than 10%, October tends to revert to the mean
  • When the YTD is up less than 10%, October extends those gains almost 80% of the time historically
Best and Worst Stocks
  • Past 10 years in October
  • The 4 stocks below have been green in 9 of the past 10 years in October
  • Last year's loss of 3.92% broke a 10 year winning streak for RAI in October
  • The 5 stocks listed below have produced negative returns in October in 8 of the past 10 years
  • ZMH has fallen in October for 6 straight years
Best and Worst Sectors
  • Health Care and Telecomm are the only two sectors to average negative returns in October over the last decade
  • Utilities and Financials are the only sectors to rise in October in each of the last 3 years
Overall Stats


Sources: Bloomberg and BTIG

The above chart shows what the average return have been over the past 3 years as well and the chart appears to resemble what the monthly returns have been this year so far....in looking at these charts and some other information, I believe October might be a slightly flat month, possibly even slightly down depending on consumer spending (which i'll be monitoring) and the trainwreck that is the politicians in Washington.  In the meantime, I'm pretty much staying on the sidelines and taking profits when the market rises in price.
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