October: Volatile but not always fatal

October 1, 2016 09:00 AM
U.S. economic data and select global influences

It was somewhat of a surprise to see that October rates were somewhere in the middle of the pack in terms of historical monthly performance in the major stock indexes since 1950, as October is famous as the month that the market crash occurred in. Dating back to the turn of the 20th Century there have been eight double-digit drawdowns in October. Despite this, the overall performance for the Dow is positive. And October has produced at least a 5% or greater return 21 times. 

More recently, October is just as likely to produce a strong rally as a crash. The last three Octobers have produced sizable gains, though in 2014 stocks stumbled massively before rebounding by month end. If there is a watchword for the month of October it is volatility. And since September is, on average, the worst performing month, October provides interesting opportunities. The market will either rebound or crash. It is perhaps a good month to buy strangles and not a month to have naked exposure.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.