Friday, October 31, 2008

Ah, October, here we go again

US Stocks: The Stock Trader's Almanac calls October the ”jinx” month because of the crashes in 1929 and 1987, as well as the slide on October 27, 1997, the back-to-back massacres in 1978 and 1979 and Friday the 13th in October 1989.

This October was no different. For the month, the Dow Jones Industrial Average was down over 14 percent, while the S&P 500 was almost 17 percent and the Nasdaq 100 down 15.7 percent.

The threat of economic upheaval has rattled markets around the globe as panicked investors and institutions, including hedge funds, rush to liquidate risky positions to raise cash.

Concern that the global economic downturn, sparked by the US housing slump, might be deeper than expected drove US stocks down sharply over the month.

Yet October sometimes turns out to be a "bear killer" or a turning point when bears, after gorging themselves on stocks, go into hibernation. So any whiff of encouraging news in the coming weeks could be fodder for the bulls and the bargain hunters out there.

Stock market volatility: With the sharp sell-off in stocks, market volatility shot higher last month – as you would expect. As noted last month extreme highs in the volatility index or “VIX” are often seen at the same time as lows in the stock market.

The chart shows the VIX pulling back from a high right as the S&P bounced from its low. So is that a sign that all the selling is over? By itself, unfortunately not. However with the market’s historical tendency to bounce from October lows and its tendency to perform well around election time, it could mean there some hope...

Crude Oil: The fear of worsening global economic conditions took its toll on Crude Oil once again last month. The market fell from above $100 at the end of September to around $67, a fall of 33 percent over the month about 54 percent from its high in July. The fall slowed late in the month around $64, but strong bearish sentiment remains. This ain’t over...