Historically, looking back over the past 20 years, October is the best performing month with an average return of +2.49%. However, as we pointed out in our October 7 edition of Market Outlook, when things don’t pan out according to historical averages markets get hysterical.

Stock market crashes in October happen just before Halloween and include the one in 1987, the panic in 1907, and the crash in 1929, culminating on black Tuesday (October 29) that ushered in the great depression.

This week’s meltdown on top of the prior declines this month leave the indexes down -10% on average so far this month and almost -16% from the highs in the IWM (Russell 2000) since mid-September.  So, the big question lurking in the ether, is whether history will repeat and culminate with something much, much, worse.

The mid-term elections are looming, and recent polls indicate the Democrats are likely to take the House and its anyone’s call as to how that will impact the market. I have heard cogent arguments both bullish and bearish about how the market will react if indeed we have a split on Capitol Hill.

This week’s takeaways are the following:

  • Equity Markets broke down thru longer term moving averages (50-week simple moving averages)
  • Sector rotation and the ”Modern Family “ has confirmed the move to safety (more on this here.)
  • Soft Commodities and Gold continue their strong relative performance versus equities
  • The best place to look for a clue to a sustainable possible bounce is an overlooked market internal indicator (% of stocks over moving averages).
  • The Dow Industrials has the best shot at regaining both its 50-week 200 day moving averages and should lead a market rally
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