Over the next handful of days, you’re likely to hear about stock market patterns and the month of October. Here’s what you need to know.
“All of these pithy little observations and patterns are worthless,” insisted Mad Money host Jim Cramer. “They are inconclusive at best and downright misleading at worst. They are a total waste of time.”
“October’s not a dangerous month per se. It just happened to be dangerous in October of 1987, when the market crashed. I bring this up because in just a few days I am sure we will hear about how history could repeat itself.
2012 marks the 25th anniversary of the '87 crash.
(What happened in 1987) "is the real tenet behind this kind of patterned thinking –and some of you might actually sell stocks simply because we have an anniversary. I don’t want you to do that,” said Cramer.
Patterns are by nature, - backward looking. And they’re predictive until they aren’t – at which time they’re tossed aside.
“Every year there are events that occur that neutralize or render totally ineffective this kind of star and naval gazing,” Cramer said.
Following are some reasons why Cramer feels ‘patterned’ investing is a bad idea - not only this October but pretty much all the time.
- First, when most of these numbers and patterns were created market's weren't nearly as global.
- Second, the Federal Reserve has taken the unprecedented step of committing to a low interest rate environment even if the economy gets better.
- Third, there’s Applethe biggest stock ever. We’ve never had a $600 billion stock before, nor the influence it wields over the tech sector and lately the entire S&P.
- Finally, the market has been changed dramatically by high frequency trading.
- Cramer’s Ultimate Growth Stocks for 2012
- Cramer’s 5 Obama-Proof Dividend Plays
- Cramer’s Plays on a Potential Housing Rebound
What’s the bottom line?
“Patterns help until they don’t,” said Cramer. “They give you comfort when there’s no reason for it. They scare you when the facts have changed and there’s nothing to be scared about. My advice: ignore the calendar and do the homework.”
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