There is a bit of trepidation as I sit here at my screen, watching the S&P 500 drop more than 3%, reading about yet another bank "buyout," and especially after skimming through Congress's just-released 110 page $700 billion Emergency Economic Stabilization Act -- Wall Street bailout plan.
Apparently, no on likes it. The bright point of the plan is the two inch margins and the double spacing that make it readable.
As an economist, I am very concerned about the long term consequences of the plan, whether it will train the markets to expect government intervention. Also, the sheer cost is very high -- about $4,600 per working person -- unless, of course, the government is able to make money with it.
Is this just the fore shocks and tremors before the financial earthquake? With all these banks failing, things could get very messy. Is this market setting up for a crash?
Here are the top five percentage drops in the Dow Jones Industrial Average since 1928:
Monday, October 19, 1987...........-22.6%
Monday, October 28, 1929...........-13.4%
Tuesday, October 29, 1929...........-11.7%
Monday, October 05, 1931............-10.7%
Wednesday, November 06, 1929.....-9.9%
Ever noticed that four out of the five are in October? And that fifth one is pretty close too. October is just around the corner! Will the markets crash in late October, perhaps on post expiration Monday, October 20, 2008?
That may or may not be significant since five is hardly a good sample size for a scientific study. Looking at the top 120 down days by month provides a little more scientific insight. If evenly distributed, there should be about ten down days a month. See the table ... September and October both have 24 each!
Could these red flags we are seeing be signaling a crash? Time will tell. Before you panic, 25 of the120 biggest up days in the market were also in October.
Do you think we will see a crash this October?
Kevin Kersten is an Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.
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Reader Comments (Page 1 of 1)
9-29-2008 @ 1:39PM
Jon Mitchell said...
The 'air' supporting inflated stocks has turned foul and the market is turning with it., It was greed, and off shore banks where the greed money went, that overcame common sense and honesty. The dream world has gone. Time to wake up, take our medicine and be sure the culprits are properly dealt with.
The proposed bailout doesn't harm the real offenders. Vote no until a bailout law is properly put together and submitted for a vote.
9-29-2008 @ 1:39PM
ed doan said...
Do you have something against me? I get a message that I will get an email, and don't. Oh well.
I personally don't find the Oct stat particularly relevant. The sample size is far too small, and is skewed by the events of 29 and 31. On the other hand, here we are, and it's October, and the markets will have to adjust to reality, so I guess you get another data point for your graph.
9-29-2008 @ 1:44PM
beachpaul said...
If you are not completely liquid by now, smoke another one. Your only defense is to short..oh,..but..you can't do that. Fools and money date, seldom do they marry. See you all in the soup line.
9-29-2008 @ 1:55PM
andyg8180 said...
The hunt for Red October is what Best Buy calls it because they sell absolutely nothing in october... okay maybe a DVD or a video game here and there... But from a retail stand point, people are getting settled into school, new jobs, and coming off vacations... Not much spending will be going on because people are catching up on debt to go right back into it for xmas...
9-30-2008 @ 8:39AM
Jim Kinkade said...
They must not interfere with the natural process. The stock market is totally out of balance. Risk capital (common stock) should pay a higher rate of return than bonds.
The current market has stocks selling with a price to earnings rate as low as .2% How anyone can justify this is beyond belief. Let the stock market drop to a realistic level, where risk is commenserate with return. NO BAIL OUT
10-06-2008 @ 10:05AM
david said...
This is america people what are you or anyone else going to do put there money under there pillow. give me a break,. If you liquid enjoy your 1% interest. Remember this is the USa gas electric comodities food medicine is not going anywhere.
10-07-2008 @ 8:50AM
John Maszka said...
What did anyone expect? The investors have no confidence in these corrupt politicians. This bailout is just one more example of the indivisible handjob stroking irresponsible CEOs and CFOs with billions so that they can run the American economy even further into the ground. So much for Keynesian economics. If the goal is to stimulate the economy, why not give the money directly to the American taxpayers? The government could do twice as much good for the economy by returning half as much money (as the bailout requires) directly to the hardworking American taxpayers. A bird in the hand is worth two in the bush administration.
10-10-2008 @ 4:10PM
Ed said...
Yes, the market will crash in October.
10-17-2008 @ 10:12AM
james said...
I am a believer in the Oct phenomena. Its too much of a coincidence. Let's face it that people are easily taken by two things that drive markets, GREED and FEAR in this case. Like it or not, fear seems to come to a head in October and history seems to support this. BTW, for all you people gripped by fear right now, history tells us markets do come back, so just CALM DOWN.