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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerOptions and trading specialist David Nassar discusses an intriguing short-term trade based on seasonal patterms at the end of October. Here's a look from his Marketwatch Options Trader.
"The global markets are still crashing, and a highly defensive approach remains warranted until very clear signs of stabilization take shape.
"Even if the broad market were to somehow stage a strong rally, we would expect a full retest of the lows, a few weeks out. Typically, October lows are retested in December (1974, 1987, 2002, et al).
"Despite this bearish outlook, we are recommending a 'October seasonal trade.' The seasonally most bullish period of the year is the end of October and the beginning of November.
"As a result, we usually try to trade this period for a rally. Given the above bearish market comments, you might think this strange, but understand that this is just a trade.
"The 'system' is to buy 'the market' on the close of Oct. 27 and to exit your position by the close of November 3rd. We usually have some conditional parameters as far as taking partial profits, and so forth.
"Over the years, this 'system' has done especially well when there has been strong selling earlier in October. This year, that's an understatement.
"The theory is that, by the end of the month, the market is recovering (still possible this year), and that institutions who sold into the earlier decline now rush to buy back stocks so that they can show them on their month-end statements.
"That might true of any month, but what makes October a bit more 'special' is that many mutual funds have October fiscal year-ends, and thus are eager to shore up their balance sheets by the end of October."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
10-28-2008 @ 11:04AM
wayne nations said...
I believe that the markets are forever ruined by the de-regulation that has allowed day traders,hedge funds, and other types of speculators to make a "bet at the race track" by the hour. I believe to a great degree we are stuck with this volatilty until and unless it is re-regulated away. I and a large number of friends and acquaintances who thought we were loaning capital to enterprises to create an economy and a return for ourselves are writing and contributing to our representatives to pass such regulations. For soime time I have been removing my money from equities and laddering bonds. To hell with this crappy atvolatility. It is my hope that many, many hedge fund managers and day traders lose their butts.