By Paul Cherney
A reminder from the previous column: The S&P 500 lost more than 10% in the June through September quarter. The index has only done this 12 prior times (since the second quarter of 1960); 10 of those losses of 10% or more were followed by gains in the next quarter. The gains are not spectacular -- many just 5% to 8% for the quarter -- but the historical precedence since 1960 is for gains.
This past quarter saw big losses in the major equity indexes. I looked at the list of the quarters which had seen losses larger than this year's third-quarter loss. Each one of the quarterly losses that were larger than this past quarter's losses represented (on an intermediate term basis) the end of a bear market. Those quarters were Q3 1974 -26.12%, Q4 1987 -23.23%, Q2 1962 -21.28%, and Q2 1970 -18.87%. (In Q3 of this year, the S&P 500 lost 17.6%)
I looked at price action during Octobers which follow big losing September quarters (losses over the prior 66 trade days of more than 10%). The lowest close in the next 22 trade days after the conclusion of the quarter tends to happen by the sixth trade day, so technically, there is still risk for close under Monday's 815.28. Historically (data since 1960), the worst closing loss was 5.66% under the price on the day of the close of the quarter.
The employment report comes out on Friday and there still might be some caution ahead of the report but I think today's Challenger report, which documented a 41% decrease in layoffs, might have calmed some nerves.
Many mutual funds end their fiscal year in October and with another down year coming into the month, there could be tax loss selling by the mutual funds, but probably only if prices undercut the Sept. 30 lows dramatically.
October has a reputation of being a bear killer (meaning some big bear markets have ended in October), prices can push lower in the beginning of the month and then rebound in the second half of the month. I think some of the observations I have made here are supportive of the suggestion that this October might be a bear killer, too.
Support: Immediate S&P 500 support is 828-812 and 818-780 which makes 818-812 a focus. The next support is 763-733.
Immediate support for the Nasdaq is 1190-1170.
Resistance: Immediate intraday resistance for the S&P 500 is 838-856.60 then 878-893.
Immediate resistances for the Nasdaq are 1206-1240, 1232-1251 which makes the 1232-1240 area a focus of resistance.
Cherney is chief market analyst for Standard & Poor's