Beware the October Trap

Posted: Oct 05, 2011 12:01 AM

Here it comes, you can bet on it. 

As sure as the sun will rise tomorrow, the GREAT BEAR TRAP will be primed and ready. 

Not only have I been writing and commenting on the financial markets for almost forty years, I’ve also been able to observe Wall Street up close in the trenches. 

Based upon all my past experience, what lies on the horizon is classic textbook.  Historically, October has been the month we all love to hate. 

The most infamous date was October 29th 1929. 

My grandfather, a broker for 57 years, was there. 

As a youngster, I took notes as he would routinely provide firsthand knowledge of that dreadful day. 

Next, October 19th 1987 is sharply seared in my memory.  A monumental drop of 27.6 % in one day surely made a lasting imprint. 

Then, there was October 2008.     

This time, my son, a fund manager, had a chance to share in the experience.  It wasn’t one day, but the entire month that will forever live in history. 

Alarmingly, the S&P 500 was down more than 27% at its low point that month. 

Yes, October lives big and bold in our family’s 100+ years of stock market experience.  Thus, the aftermath of this month is my major concern. 

I’m already hearing from the sell-side analysts how “were getting close to a buying opportunity.” 

They’re also saying “ride it down, it can only go up from here” and “you don’t want to miss this one.” 

These are all messages that resonate with the general public who have built their entire investment portfolios on hope.  Incidentally, the very first column I wrote for Townhall Finance plainly states “hope is not a strategy.”

Why would someone go long the market knowing these facts?  Perhaps some people think they can trade quickly enough to avoid disaster, while others think the economic facts are simply wrong. 

Or, the general public has no clue whatsoever. 

In my opinion, as these buyers move the market higher, those smart enough to sell into this temporary upside will be smiling all the way to the bank. 

As I listen to Ben Bernanke throw in the towel on jobs, Greek Prime Minister Papandreou contemplate retirement, Barack Obama playing class warfare, and housing continuing to plummet, I can only believe the economic turnaround is nowhere in sight and the light at the end of the tunnel is a steaming locomotive taking dead aim. 

Yes, the financial market could move higher for awhile, and then the bottom will suddenly fall out. 

This will ensnare all those who chose to ignore history, disregard reality, and decided to overlook the GREAT BEAR TRAP.    

John Ransom | Create Your Badge

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