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Scary Halloween for Stocks 
(1)
(1)
NASDFriday, October 31, 2008
By Anthony Kolton and Gibbons Burke
The Dow Jones Industrial Average is down 33% since October 30th of last year; the other indexes have fared worse - the S&P 500 index is down -37.7% and the Nasdaq Composite index is down 39.7%.
Q: How have stocks performed in the past when the indexes are down 20% or more over the last year on the close on the day before Halloween?
A:
- Dow Jones Industrial Average (DJIA) - According to the 9 previous occurrences of this event, EventEdge indicates that DJIA.t has shown a very strong bearish edge that peaks 19 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Thursday, 30 October 2008) is Wednesday, 26 November 2008. DJIA.t declines in 100% of the cases (9 of 9) by an average of -6.4% relative to the close on the event date. The overall return of the 9 cases is -6.4%, which, based on the close of DJIA.t on the event date (9180.69), provides a target price of 8593.13.
- S&P 500 Index (SPX) - According to the 6 previous occurrences of this event, SPX has shown a somewhat bearish edge that peaks 39 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Thursday, 30 October 2008) is Friday, 26 December 2008. SPX declines in 83% of the cases (5 of 6) by an average of -14.2% relative to the close on the event date. The average of the 1 rally is 8.5%. The overall return of the 6 cases is -10.5%, which, based on the close of SPX on the event date (954.09), provides a target price of 853.91.
- NASDAQ Composite Index (NASD) - According to the 4 previous occurrences of this event, COMP has shown a very strong bullish edge that peaks 4 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Thursday, 30 October 2008) is Wednesday, 5 November 2008. COMP rallies in 100% of the cases (4 of 4) by an average of 4.6% relative to the close on the event date. The overall return of the 4 cases is 4.6%, which, based on the close of COMP on the event date (1698.52), provides a target price of 1776.65.
We are very bearish for the coming week in stocks. The markets are already discounting an Obama victory, and retirement-ready baby boomers have already been heading for the exits in stocks to get into 'safer' investments just because that makes sense at this time in their lives. The prospect of an increased capital gains tax with an Obama presidency, perhaps even a retro-active one, is scaring capital out of their gains to render unto Caesar at a lower tax rate while it lasts. If the Democrats take the White House, and, worse, if they achieve a filibuster-proof majority in the Senate (60) the markets could take a significant hit.
Anthony Kolton2 is president of Logical Information Machines3 and Markethistory.com, Inc.
Gibbons Burke4 is editor of MarketHistory.com.
Let variable values:
@ = DJIA
Date Day y-1 t+1 t+3 t+10 t+19 t+32
10/30/1903 Fri -31.5 1.4 -2.7 -3.3 -1.1 -1.1
10/30/1907 Wed -37.6 -1.2 0.1 -6.9 -4.9 -4.9
10/30/1917 Tue -27.6 -1.4 -4.0 -8.4 -2.3 -2.3
10/29/1920 Fri -27.5 0.5 -0.7 -9.9 -10.5 -10.5
10/30/1930 Thu -27.2 -2.5 -4.4 -2.1 -3.8 -3.8
10/30/1931 Fri -44.7 0.5 4.4 0.8 -9.7 -9.7
10/28/1932 Fri -37.2 -1.9 -7.2 3.9 -6.2 -6.2
10/29/1937 Fri -21.5 -1.8 -7.0 -7.6 -10.8 -10.8
10/30/1974 Wed -30.5 -1.1 -2.3 -2.1 -8.3 -8.3
10/30/2008 Thu -33.4 NaN NaN NaN NaN NaN
Avg -31.9 -0.8 -2.6 -4.0 -6.4 -6.4
AvgPos NaN 0.8 2.3 2.3 NaN NaN
AvgNeg -31.9 -1.7 -4.1 -5.8 -6.4 -6.4
PctPos 0.0 33.3 22.2 22.2 0.0 0.0
PctNeg 100.0 66.7 77.8 77.8 100.0 100.0
Maximum -21.5 1.4 4.4 3.9 -1.1 -1.1
Minimum -44.7 -2.5 -7.2 -9.9 -10.8 -10.8
StdDev 6.7 1.3 3.6 4.6 3.6 3.6
ZStat -4.8 -0.6 -0.7 -0.9 -1.8 -1.8
Variance 44.3 1.8 13.2 21.2 13.1 13.1
10 Occurrences
Let variable values:
@ = SPX
Date Day y-1 t+1 t+3 t+10 t+19 t+32
10/30/1930 Thu -24.6 -2.3 -4.2 -2.6 -5.5 -5.5
10/30/1931 Fri -39.9 0.9 3.4 0.9 -10.5 -10.5
10/28/1932 Fri -29.6 -1.6 -8.0 6.6 -3.9 -3.9
10/29/1937 Fri -28.2 -1.1 -7.2 -7.0 -10.0 -10.0
10/30/1974 Wed -32.0 -0.6 -1.7 -1.3 -6.5 -6.5
10/30/2001 Tue -24.2 -0.0 2.6 7.5 8.5 8.5
10/30/2008 Thu -37.7 NaN NaN NaN NaN NaN
Avg -30.9 -0.8 -2.5 0.7 -4.7 -4.7
AvgPos NaN 0.9 3.0 5.0 8.5 8.5
AvgNeg -30.9 -1.1 -5.3 -3.6 -7.3 -7.3
PctPos 0.0 16.7 33.3 50.0 16.7 16.7
PctNeg 100.0 83.3 66.7 50.0 83.3 83.3
Maximum -24.2 0.9 3.4 7.5 8.5 8.5
Minimum -39.9 -2.3 -8.0 -7.0 -10.5 -10.5
StdDev 6.1 1.1 4.8 5.6 6.9 6.9
ZStat -5.1 -0.7 -0.5 0.1 -0.7 -0.7
Variance 36.8 1.3 23.3 31.2 47.9 47.9
7 Occurrences
Let variable values:
@ = NASD
Date Day y-1 t+1 t+3 t+10 t+19 t+32
10/30/1974 Wed -41.4 0.5 -0.4 0.2 -3.4 -3.4
10/30/1990 Tue -26.9 0.0 2.0 7.0 7.3 7.3
10/30/2001 Tue -47.8 1.4 4.7 13.5 16.1 16.1
10/30/2002 Wed -20.4 0.2 5.3 2.6 8.9 8.9
10/30/2008 Thu -39.7 NaN NaN NaN NaN NaN
Avg -35.2 0.5 2.9 5.8 7.2 7.2
AvgPos NaN 0.5 4.0 5.8 10.8 10.8
AvgNeg -35.2 NaN -0.4 NaN -3.4 -3.4
PctPos 0.0 100.0 75.0 100.0 75.0 75.0
PctNeg 100.0 0.0 25.0 0.0 25.0 25.0
Maximum -20.4 1.4 5.3 13.5 16.1 16.1
Minimum -47.8 0.0 -0.4 0.2 -3.4 -3.4
StdDev 11.2 0.6 2.6 5.8 8.1 8.1
ZStat -3.1 0.9 1.1 1.0 0.9 0.9
Variance 125.6 0.4 6.8 34.1 65.1 65.1
5 Occurrences |
Comments:
Web Address of this trading idea:
Links:
2 http://www.markethistory.com/staff/detail.html?s=kolton
3 http://www.lim.com/
4 http://www.markethistory.com/staff/detail.html?s=gibbons