T.S. Eliot wrote in his poem, The Waste Land, “April is the cruelest month.” For many investors, October should have gotten top billing as the harshest. Three big crashes come to mind, 1929, 1987 and most recently in 2008.
While ETF Stocks isn’t predicting a stock market crash in October, some signs point to a difficult month ahead. Starting next Tuesday, the parade of quarterly profit report cards “officially” begins with Alcoa (AA).
The previews before the movie haven’t been good. FedEx (FDX) lowered its outlook twice, saying the global economy is getting worse. Intel (INTC) and Caterpillar (CAT) chimed in with similar comments. These three touch many aspects of the economy with limited crossover. If the trio foreshadow the earnings season, then stocks are likely to slump. After all, profits are to rising stock prices what the full moon is to the tide.
October is also going to be filled with major economic releases. Before the calendar brings us to the GDP news, the Employment Situation results will be announced on the 5th at 8:30 am ET. Economists are forecasting a gain of 113,000 new jobs and an unchanged unemployment rate of 8.1%. September’s Jobless Claims have been all over the place; so, it’s hard to get a read on how Friday’s report will play out. However, ETF Stocks feels there could be more downside than upside in the report as the local paper says 26 states saw unemployment rise, while only 12 states experienced more hiring.
Two of ETF Stocks three market models have turned sour heading into to the consequential month. Positive momentum has evaporated, and market leadership is no longer in the hands of the NASDAQ. Typically, when these two models are red, it is tough sledding for the stock market. Finally, our market type reading has moved from a bullish to sideways reading.
None of this means stocks are destined for losses, but it does mean that earnings and the economic news better be good, probably better than expected; otherwise, October could be the cruelest month of 2012.