Trader Talk

Here's what we need for an October bottom

Traders work on the floor of the New York Stock Exchange.
Getty Images

You've heard this many times: October is traditionally the month where stocks bottom.

There is some truth to this. The Stock Trader's Almanac calls October the "bear killer" because it has turned the tide in 12 post-World War II bear markets: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002, and 2011.

The "worst six months of the year" trend also ends in October.

Still, these are not normal times and anyone who relies on seasonality exclusively is courting trouble.

What do we need for a bottom?

1) China: Growth stability. We don't even need more stimulus. Just growth stability.

2) Oil stabilization. Oil has become a proxy for global growth and so stocks and oil often trade in tandem.

3) Fed: Clarity on rates. Time to make a choice: Hike or no hike. I've argued that a single hike followed by strong guidance that the "glide path" will be very long would be better than the netherworld we are occupying. Fed Chair Janet Yellen made an important clarification last week by saying she did not think concerns on the global economy would be enough to impact their thinking on rates.

4) Dollar stability, which will be difficult if the Fed hikes.

5) Continued job growth and, more importantly, wage growth.

You can argue that a few other things should happen: The bond rally should end, but not too abruptly. A deal should be reached soon to avoid a December shutdown of the government.

This is a pretty broad wish list. Still, we don't necessarily need all of these things to happen for stocks to end the year higher. We certainly need at least need a few, however. Right now, we are seeing job growth, and modest stability in the dollar and oil, but the dollar and oil still have a tentative feel to them. We don't have the conditions for a bottom yet.

Would anything else help stocks? Here's something: Surprisingly positive comments from corporations. It's possible. I noted Wednesday that only 76 companies have provided earnings guidance below consensus, the lowest number since second-quarter 2012.