The media loves to tell scary stories about the performance of the S&P 500 in October.

It’s not hard to do with the crash of 1987 which left October down 21%, and more recently October 2008 which shed about 17% from investors’ portfolios on top of an already punishing year.

Big down months like those are certainly scary, but the media usually neglects to report on “the rest of the story”. So before you blindly believe the hype about October consider this…

Almost exactly one year ago today I wrote a piece for our members (maybe you read it) which concluded that the month of October in 2015 was, statistically likely to be a “bear killer” that year.

In that article I referred to October, as a “gold mine” and a “great time to find bullish swing trades”.

Last October the S&P 500 returned 8.30% which was the 5th best October performance in the last 49 years!

Needless to say, if you missed lasted year’s October move, you missed the best month of the year, so be careful about what you believe in the media.

Unfortunately, if history is as helpful as it was last year, October 2016 does not have the same “gold mine” qualities it had in 2015.

As you’ll discover in this week’s Market Outlook video, the markets have some very clear lines of support which you should treat with great respect.

Additionally, the performance of the leading sectors as measured by our Triple Play price and volume leadership indicators should be also be monitored closely, because the bulls will not have the wind at their back this October.

Video Length - 00:34:54

If you look at the last 49 years of data in the S&P 500 (beginning in 1966) you’ll find that October looks like this:

Average return: 1.0%
Percentage of positive months: 59%
Biggest up month (1974): 16.3%
Biggest down month (1987): -21.8%
Average up month (average return when positive): 4.6%
Average down month (average return when negative): -4.3%

On the surface these statistics would suggest that October has somewhat of a bullish bias, but nothing that would get me excited.

However, these numbers do not accurately reflect reality!

Good News Is Bad News For October!

This week, the front page of the weekend edition of the Wall Street Journal headlined, “Stocks End Quarter on a High Note”.

As it turns out, that is not good news for October.

If you look at how October fairs when the third quarter (Q3) is positive you’ll find that a positive Q3 is a negative for October.

In the table 1 below you’ll see that when you compare positive Q3 performance to negative Q3 performance, the following October’s performance is worse on almost every measure when Q3 is positive! The average return, percentage of up months, the biggest up month, and the biggest down month are all worse in years where Q3 was positive!

The Year to Date (YTD) context yields a similar bias. October has a better chance of being positive if the YTD performance is negative going into October.

Look at table 2 below, by all measures, October fairs better when it begins down on the year.

However, there is hope for a positive month. The statistics only suggest that when October is bullish (59% of the time), its performance on average is subpar (0.1%).

Unfortunately, this year we begin October with positive YTD and Q3 returns, and this is the most bearish of cases for October.

In Table 3 below you’ll see that when both the YTD and Q3 performance is positive, October has had its worst performance in every category except “average negative return”!

In short, while there is a 50% chance that October will be positive, the positive years have been the weakest on record when the context of the YTD and Q3 performance is considered!

Actually, that’s not entirely true… I don’t think you can look at the market in context without considering the fact that it is an election year!

(like it or not)

And unfortunately, this does not help the Bulls’ case.

In this final table (Table 4) I’ve highlighted the current condition of the markets in yellow. I've also highlighted the most bearish conditions in red and bullish conditions in green before considering the election years. If the election year creates an equal or more bullish or bearish conditions it is also highlighted.

When you look at table 4 above, you’ll see that the MOST BULLISH case for October exists when both the YTD and Q3 performance is NEGATIVE (as it was in 2015), and…

The most bearish scenario for October exists when the opposite condition exists – a positive YTD and Q3 performance which is what we have in 2016.

Unless, unfortunately, it’s an election year! Then the average positive return, and the biggest up month are reduced even further to their lowest level.

It is important to note that even in this most bearish case for October, the odds of having an up month are 50% or greater. However, these statistics suggest that any up month will be below average.

So with a “subpar return” expectation for October, it’s time to look at the weekly Market Outlook video to figure out whether to expect a weak positive month or an ugly negative month!

For this task I’ll use our expertise in sectors rotation along with our powerful Triple Play price leadership indicators.