Novembers in the Market
Dan Greenhaus is with the Equity Strategy Group of Miller Tabak + Co. He put out this fascinating analysis of what “Novembers” typically hold in store for us after nasty “Octobers”
Dan writes:
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Okay, so we all know October was down a fantastically ugly 16.94%, the steepest decline since 1987 when that October declined 21.76%. Going back to 1950, there have been 23 years in which October has been down by *any* amount from the prior September for an average decline of 3.15%. Subsequent to those 23 years, the following November saw an average gain of exactly 1%, while the following two months, at the end of December, saw gains of a much more substantial variety; up 3.54%. But of course the decline in this past October was outsized in comparison to the average October decline, so let’s narrow this down a bit. Using only instances in which October saw a decline of 3% or more (eight such instances), the average gain at the end of November was 1.67% while the average gain at the end of December was 3.70%. To a degree, this is not entirely surprising as one would assume that the steeper decline would lead to a steeper rebound. But in most of those instances, the decline was relatively modest. As I said, those 23 declines averaged about 3.15%, a far cry from October 2008. The only analogous decline was the drop in October in 1987 which led to a subsequent 8.53% drop in November 1987.
As I noted, the depth of the decline we just went through in October has only one parallel in the post 1950 time frame, which is 1987. So the next logical step is to head back to the 20s and 30s to get a handle on what occurred in that time period. Unfortunately, the Octobers of that time didn’t fare too much better. October 1929 was down 19.93%, October 1930 was down 8.88%, October 1932 was down 13.86%, October 1933 was down 7.82% and October 1937 was down 10.25%. In the first three instances I noted, the subsequent November was actually down an additional 13.37%, 3.31% and 5.89% respectively and November 1937 was down another 10.25%. Only November 1933 saw a gain, moving higher 10.27%.
The point is that while we would be inclined to think that a drop of the magnitude we just witnessed would, at the very least, produce a dead cat bounce, that assertion is not entirely supported by history
November 5th, 2008 at 10:31 am
This guy makes money with this advice? No wonder so many goofballs lose money in the stock market.
November 5th, 2008 at 10:40 am
Barry,
This topic about November results is what I mentioned last night, when I said I didn’t consider Economics a science. A couple of economists took exception..so I should make myself clearer.
What I dislike about calling Economics a true science is its failure, completely, of the scientific method.
From Wikipedia:
“Scientific method refers to bodies of techniques for investigating phenomena, acquiring new knowledge, or correcting and integrating previous knowledge. To be termed scientific, a method of inquiry must be based on gathering observable, empirical and measurable evidence subject to specific principles of reasoning.[1] A scientific method consists of the collection of data through observation and experimentation, and the formulation and testing of hypotheses.[2]
Although procedures vary from one field of inquiry to another, identifiable features distinguish scientific inquiry from other methodologies of knowledge. Scientific researchers propose hypotheses as explanations of phenomena, and design experimental studies to test these hypotheses. These steps must be repeatable in order to dependably predict any future results. Theories that encompass wider domains of inquiry may bind many hypotheses together in a coherent structure. This in turn may help form new hypotheses or place groups of hypotheses into context………”
It’s the “These steps must be repeatable in order to dependably predict any future results” part that I just find wrong with Economics. It is almost like chaos the0ry. You could call it a field of study.
..”This is what we observe in Novembers, but what will happen this time?” Not the same as projecting an orbit, or understanding metabolic acidosis, or predicting I2R losses in transmission lines….
If these things are reproducible and predictable, what will be the national gdp in 2010…within 5%?? And why were there not more practicioners who felt as Roubini did???
November 5th, 2008 at 10:53 am
Well spoken, sir!
Economics is a curious mixture of 4 parts finance, 3 parts psychology (which is most certainly NOT a science!), and 2 parts astrology (ditto).
It is a well-established legend that economics never hit the mark precisely (Dr Roubini being the exception that proves the rule — I never did understand that saying), with old chestnuts like “One could lay all the economists in the world end-to-end and never reach a conclusion”, reflecting their obsessive qualification of their pronouncements, hoping to cover every possibility. One NEVER sees an economist stating “X will happen in N months, due to ….”.
Economics is quite similar to TMA — a useful tool, but nothing you want to bet your life on.
I have a lot of respect for economists, but they are no better at predicting the future than anyone else. The future remains chaotic, twitching in response to a zillion influences.
November 5th, 2008 at 10:54 am
November may not be the down month everyone is expecting. Irrationality rules, imo, and where there hOpe, there’s fire. Read what Krugman posted this morning:
Last night wasn’t just a victory for tolerance; it wasn’t just a mandate for progressive change; it was also, I hope, the end of the monster years.
What I mean by that is that for the past 14 years America’s political life has been largely dominated by, well, monsters. Monsters like Tom DeLay, who suggested that the shootings at Columbine happened because schools teach students the theory of evolution. Monsters like Karl Rove, who declared that liberals wanted to offer “therapy and understanding” to terrorists. Monsters like Dick Cheney, who saw 9/11 as an opportunity to start torturing people.
And in our national discourse, we pretended that these monsters were reasonable, respectable people. To point out that the monsters were, in fact, monsters, was “shrill.”
Four years ago it seemed as if the monsters would dominate American politics for a long time to come. But for now, at least, they’ve been banished to the wilderness.
http://krugman.blogs.nytimes.com/2008/11/05/the-monster-years/
November 5th, 2008 at 11:41 am
In my own study of October 2008 price action I found a greater similarity to October 1974 and October 2002. Both produced a lenghty retest period of lows (1 and 4 months respectively) but both maintained the prior reaction low as the absolute low.
http://www.zignals.com/main/stockalertsblog.aspx
Will now be different?
Best wishes,
Declan
P.S. We have removed our BigPicture subheading from our Blog given your earlier stance on the issue
November 5th, 2008 at 12:07 pm
“This guy makes money with this advice? No wonder so many goofballs lose money in the stock market.”
Observing and noting history makes him a goofball?
November 5th, 2008 at 12:10 pm
Dead hobo, you are so smart and intelligent. We can all depend on you to analyze deeply and comment extensively and on all that you read. We are all better for the extraordinary insight you dole out. Where can we find more of your priceless work? Can you please add me to your distribution list?
November 5th, 2008 at 12:55 pm
I don’t know this is the best data to be looking at. to compare previous occurrences to this is, I think, off base. esp when the closest comparison is looking at 1929-1933…maybe interesting from a historical basis but I hope nobody’s setting their watch on this.
November 5th, 2008 at 12:58 pm
This place is starting to look like a frickin’ hobo jungle. Yer damn right I’m smart, Bozo. I’m smart enough not to see repeating patterns when none exist, except after a little excess Ripple and then I’m liable to see about anything for a while. Acquaint yourself with a little behavioral economics and wise up some. Or I’ll steal your shoes.
November 5th, 2008 at 1:03 pm
What happened? I just posted something and it’s not there. An attempted repost said it was a duplicate. I was commenting about the way it’s starting to look like a hobo jungle here.
November 5th, 2008 at 1:12 pm
A hobo jungle? Thats my kinda jungle!
November 5th, 2008 at 1:13 pm
Keeping in mind that much of the collapse in 1929-32 was driven by some really poorly considered fiscal (Smoot-Hawley tax/tariff increase) and the Fed’s deflationary monetary policies. As a result, corporate earnings and dividends went into reverse during the period, which really drove stock prices lower. Of course, while stock prices rose somewhat from that lowest level, their underlying dividends didn’t begin sustaining an upward path until the depression ended in 1943 (scroll below the ranking table of presidents for the relevant history!)
As for today’s market, we’re going to concur with Zignals, although for different reasons….
November 5th, 2008 at 1:19 pm
Just in case the original post never resurfaces, my point to the junior hobos was:
Read some behavioral economics and learn about how the brain likes to see patterns where none really exist. (If you add Ripple to that, you will see really convincing patterns for a while). It’s you lizard brain trying to make sense out of random events.
Confusing Historical events and graphs with “how A reminds you of B, thus B must be coming if A just occurred” is a great way to let someone steal your shoes.
November 5th, 2008 at 1:38 pm
You probably would steal my shoes, bozo. You don’t have an original thought of your own. You asked that I acquaint myself with behavioral economics when I made no reference whatsover to any specific topic. You are a joke and just to keep you frustrated I will not respond to anything else you write and I won’t even return to this page, so whatever you write you will be writing to yourself, sort of like playing with yourself, dildo!