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If October is positive, go for it

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by Peter Switzer

If October isn’t a negative month, then I will be closer to announcing that the worst of the global financial crisis (GFC), and the associated collapse of share prices, are behind us. I have always argued when the real chances of another big sell-off are done and dusted, we will see a big spike in stocks.

But there’s trouble with this for the Nervous Nellies — you might miss the first big bounce of the market because we could be in it right now!

Presently, I’m fully invested in stocks but they are stocks I have bought on the dips and they’re great companies that pay good dividends — regular readers know I have been recommending this strategy for three or so years.

Bring on the Santa Claus rally

I guess when I’m really comfortable with stocks I could do some margin loan buying — albeit for a short time — but that will come when I’m totally relaxed with stocks.

I expect December will bring a traditional Santa Claus rally because we’ll get the US election out of the way and I think the Congress will deal with the fiscal cliff, and by then China will be showing some positive signs.

By the way, China stocks are so cheap. The last time they were at these levels, the market rebounded over 80 per cent in a year! By the way, that was only in 2008, but is this time different? The experts think China grows at the slowest pace for 13 years unless something isn’t done, and quickly!

Mixed result

Wall Street was up on the Dow but just negative on the S&P 500. The big index was up 34.79 points or 0.26 per cent to 13,610.5 while the S&P 500 gave up 0.47 of a point to finish at 1460.93.

The Dow is now at the best level since December 2007 and remember the GFC crash began in November of that year. The index up 11.4 per cent for the year while the S&P 500 is up 16.17 per cent. For the week, the indexes were up 1.29 per cent and 1.41 per cent respectively. There are three and a half weeks to go before we beat this spooky month and at a time when some doomsday merchants have been tipping a big sell-off is nigh!

I can’t see it unless it’s a weird left-field event, say from the Middle East, and so given our S&P/ASX 200 index is up 10.8 per cent for the year, but is up 12.8 per cent since June 4, we could be at the start of a big spike for shares that will come after the New Year.

October test

That said, a lot has to go right between now and then but we’re a chance and the first real test will be what happens in October.

Over the weekend, good news trickled through with an OK jobs report in the USA with unemployment falling from eight per cent to 7.8 per cent with 114,000 jobs created in September. This compares with a forecast of 113,000 and it was up from the 96,000 that showed up in August.

Outlook for news

Generally speaking, I like the arrival of some good economic news in the USA but we need to see a lot more between now and New Year.

We also need to see a better than expected reporting season, which starts on Tuesday with Alcoa reporting. Analysts tip a tough quarter for profit but the outlook statements will hold the most sway.

I don’t expect great news as the quarter had bad economic readings and negative outlooks for markets and economies, explaining why the Federal Reserve and the European Central Bank let their money supplies be extended.

However, if the Yanks do better with company reporting, it could be a big building block in the foundation of that towering share price, which is out there waiting to happen.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Monday, October 08, 2012

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