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Considering today is October 19th, 2016, I figured that I would do this blog post to dispel the myth of October being a bear month. To start things off, we will look at the history and the phobia of October. We will be referencing in this next part some work done by Yale and Jeffrey Hirsch. In one excerpt I think he captures the essence pretty well.

“October often evokes fear on Wall Street as memories are stirred of crashes in 1929, 1987, the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989, and the 733-point drop on October 15, 2008. The term “Octoberphobia” has been used to describe the phenomenon of major market drops occurring during the month. Market calamities can become a self-fulfilling prophecy, so stay on the lookout and don’t get whipsawed if it happens.”

Excerpt From: Jeffrey A. Hirsch & Douglas A. Kass. “The Little Book of Stock Market Cycles.”

There is a slight warning at the end, and yes, sometimes the thought of October can send the market whirling down but usually, there are other things at work during the time. In 1987, for example, the S&P 500 climbed almost by 40% since the start of the year, an almost unheard-of amount. Also, 19th  of October in 2016, is options expiration week. Options expiration day happens every third Friday of the month generally. According to Hirsch, “Options expiration week in October provides plenty of opportunities. On the Monday before expiration, the Dow has only been down five times since 1982 and the Russell 2000 was up 17 years straight from 1990 to 2006. After mild gains the first couple of days, stocks tend to drift lower. Midmonth trading is more robust around options expiration. Weakness then plagues the third week of the month. Strength during the last several days is most dependable the second to last day with the Dow Industrials and S&P 500 up 14 of the past 21 years, averaging one-day gains between 0.5 and 0.7 percent.”

Excerpt From: Jeffrey A. Hirsch & Douglas A. Kass. “The Little Book of Stock Market Cycles.”

          Considering the above, we can test this stuff on our own. Let’s look at each day during the month of October for the Dow and S&P 500, buying on Trading Day Of The Month (TDOM) 1-23 and getting out on the close. Normally, there are only 21 trading days, but sometimes we get more.

During October For Dow Jones

Buying on the opening of TDOM and getting out on the close each day

*(TDOM & TDOY & First Profitable Open Concepts Invented By Larry Williams)

During October For The S&P 500

Buying on the opening of TDOM and getting out on the close each day.

          As you can see both above and below TDOM of 19, which is really TDOM 20 in both the Dow Jones and S&P 500 are insanely high, which confirms not only Hirsch’s work but also my own thoughts about markets. Overall if you look at everything, you will see that selling is very hard to come by in these markets in October.


Using Dow Jones Industrial

Ok, so now we are going to expand upon the above. The rules we are looking for the First Profitable Open(FPO), with a risk of $3250 on each trade. It’s important to remember that when it says, for example, 18 on the left-hand column, it means buying on the 19 TDOM. Because Tradestation always buys the next day’s opening. So, if it is trading day 18 and you see all the stats you would be on the open of the 19th. Here is the logic. If TDOM =1 then buy the next bar open. Thus, making it TDOM 2. Hopefully, that makes sense. If not let me know. This is for the entire month of October. Nothing else.

I also just released a new Streaming DVD, called “Quant Trading 101” that focuses specifically on this kind of analysis Click Here For More Details.

Good luck and good trading everyone!!!!

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