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Could This Year’s Market Be Different?

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Memo to all stock market bears: It’s late in the game and your losing. The calendar says “November,” which means bears only have another 60 days for their wild dreams of a fantastic stock market crash in 2014 to come true. That’s not much time.

The fact is October has historically always been a great month for stock market bears. Some of the greatest stock market meltdowns of all-time have occurred in red October. (See 1929, 1987 and 2008)

But the U.S. stock market’s not so terrific selloff this October was short (pun intended) and sweet.

From mid-September to mid-October, the S&P 500 slid around 6% while stock market fear or volatility (VIX) soared 89%. During bull markets, the average correction in the S&P 500 is a 14.2% decline and has lasted 135 days. By that measure, the October pullback wasn’t even a blip.   

Even so, bears that were able to correctly trade the September to October selloff, did pretty good. During this period, the ProShares S&P 500 Short ETF (SH) gained 6.1% while the triple leveraged Direxion Daily S&P 500 Bear 3x Shares (SPXS) shot higher by 18.7%. But again, it was short lived.

“There is an appointed time for everything,” say the wise words from Ecclesiastes. And from an investment angle, stock market bears – as far as 2014 is concerned – have run exhausted their time. Even history teaches us this much because we are now entering into a seasonably favorable period for the stock market.

Going back to 1950, the November to January three-month span has been the strongest performing period for the S&P 500 (SPY). Since then, the S&P 500’s historical November monthly gain has been 1.5%, December up 1.7%, and January up 1.2%. Does that look like the kind of stock market you want to be shorting?

Some investors (including this author) don’t like to bet against history. And the historical odds of this firmly established seasonally bullish pattern – so long as stocks remain above key technical levels – probably continues at least for the rest of 2014.

Crazy as it sounds, stocks are poised to record their fifth consecutive yearly gain.

That means bears will have to say the same thing fans like me say about the Chicago Cubs: There’s always next year!


Ron DeLegge’s is the founder and chief portfolio strategist at ETFguide. His next Portfolio Workshop for financial advisors is on Tuesday, Nov.18 @ 1 p.m. Eastern Standard Time. Attendance is free.


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