It's time for our weekly chat with Chart expert Jordan Kotick, Global Head of Technical Analysis with Barclays Capital.
Q – The market made it through September with minimal downside. What should we draw from that?
A – The best the bears could do was an approximately 4%-5% decline early in the month. Given that September is the worst month of the year for stocks, like the small correction this summer, the shallow downside and bucking of the seasonal trend has to be taken as a small positive for the bulls.
Q – But now the market heads into October, isn’t that also a bearish month for stocks?
A – Not, actually, it is positive. October gets a lot of attention because of the severe downside moves (October 1987, October 2008 for example) but overall, as you can see below, the returns are not overwhelming but tend to be positive.
Q – So this means the market will go up in October?
A – Not necessarily. We are bullish, we do think the trajectory is higher into the end of the year. But remember seasonal tendencies are simply tendencies. You should be aware of them but not necessarily commit capital on them. If you had, you would have been offside for most of September. Other trends and intermarket correlation's are much more important and as they have been all year, remain equity supportive.
Q – Any signals you are watching outside of stocks specifically?
A –Quite a few. One that has our attention are some of the crack spreads. As you can see on the next chart, the Heating Oil Crude Crack is at levels that has marked a bottom in this market for the last 12 months. An upside move here would be potentially a good sign for business demand of energy and therefore stocks and risk overall.