Will History Repeat?

Each of the big losing third quarters over the past three-and-a-half decades has been followed by a positive fourth quarter

By Paul Cherney

Historically, after a big losing September quarter, the October lows have occurred in the first half of the month. The following is a list comprised of the number of trade days into October (trade days not calendar days) that the low closes have occurred and the percentage change in the S&P 500 on the day of the low close:

• October, 1966, 5th trade day -4.39%

• October, 1974, 3rd trade day -1.98%

• October, 1975, 1st trade day -1.12%

• October, 1981, 1st trade day +0.77%

• October, 1990, 9th trade day -3.46%

• October, 1998, 6th trade day -5.66%

• October, 2001, 1st trade day -0.23%

Every single one of these fourth quarters finished with gains.

The average of all the October low performances is -2.3%. The S&P 500 closed this year's third quarter at 815.28; a 2.3% loss would equate to a close of 796.53 (the low close of July 23 was 797.70). A re-creation of the worst October closing loss (-5.66% in 1998) would equate to a close of 769.14.

Many mutual funds end their fiscal year in October and with another down year coming into October, there could be tax loss selling by the mutual funds, but probably only if prices undercut the Sept. 30th 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.

Support: Immediate S&P 500 support is 828-812 and 818-775.96 which makes 818-812 a focus. The next support (under 775.96) is 763-733.

Immediate support for the Nasdaq is the low print of this downleg (so far) 1160.07, then 1154-1118.

Resistance: Immediate intraday resistance for the S&P 500 is 835-856.60 then 878-893.

Immediate resistance for the Nasdaq is 1195-1222 and 1206-1240, which makes 1206-1222 a focus.

Cherney is chief market analyst for Standard & Poor's

Before it's here, it's on the Bloomberg Terminal.