The Stock Market: Don’t Worry – Be Happy

by JDH on October 2, 2010

Wow. So September was the best September for the stock market in the history of mankind, up about 9% in one month. Wow. Now I feel silly for worrying about unemployment, massive government spending, massive foreclosures, deflation, and all of the other problems we are facing. Don’t worry. Be happy.

Even better, when September goes up, October also goes up. According to CNBC (and they are never wrong, and they are not shills for the government):

There have been six occasions since 1928 when the Standard & Poor’s 500 has gained more than 5 percent in September, and they have been followed by an average gain of 0.7 percent in October, according to S&P research.

And in the 14 instances in the past 30 years when the S&P has a positive September, an October gain has followed nine times, with an average rise of 1.64 percent.

Even better, apparently, since 1945 October has been the market’s best month. We just think it’s a bad month due to some crashes that have happened in October. But, apparently, overall, it’s a great month.

So here’s my new plan:

I’m no longer going to be a pessimist. I am going to ignore facts like: new home sales are at their second lowest level on record, even though we have record low interest rates.

I am going to take all my cash and put it in the market, and hope that the market will gain another 9% in October! Yeah!

Correction: no, I’m not.

I believe the stock market will continue to increase through October, because I believe the markets are, at some level, rigged. I believe that government stimulus money finds it’s way to the markets, via the Fed, or the Treasury Department, or the Plunge Protection Team, or whatever. If I was the U.S. government, and I had elections coming up in the first week of November, I would do everything in my power to keep the markets up until then, because it will be easier to get re-elected. “Hey, people” they will say, “the economy has recovered, your stock portfolios were up 9% in September, the stock market is a leading indicator, that’s a sure sign of recovery!”

Yeah, maybe. Or maybe it’s a sure sign that someone is propping up the market.

I am itching to deploy my cash. I don’t want to be left behind. But I am left with a choice: jump in now and risk the correction, or stay on the sidelines and lose nothing, but miss some upside. I have decided I would rather lose some upside. So I sit, and wait.


Last week I said it was looking toppy. Today it looks even more toppy.

Gold Looking Toppy Now

The Relative Strength Index (the RSI) has only hit the 83 level twice before in the last three years. It did back in November, 2007 when gold was in the $850 range, and it corrected down to below $800 for a month and a half. Not a big correction.

The last time was in at the end of November, 2009, when gold briefly exceeded $1,200, before correcting down to the $1,050 level over a two month period. These high RSI levels may have another week, or two, or four at these high levels, but it’s not sustainable, so a correction is inevitable.

I have covered the blue chip gold stocks I have remaining (by selling out of the money October call options) to lock in some profit. My other stocks, that are now into the double digit gain territory are being gradually sold to recover my original investment. Once I am no longer playing with my money, I’m willing to let it ride.

That’s the key: take some profits to reduce risk and raise cash, and then risk only some of your profits.


Finally, at the end of last year I invited readers to send in their 2010 Predictions for where the Dow and Gold would finish each quarter. How did we do?

On average we predicted that the Dow would be 11,538 on September 30, 2010. It actually closed at 10,807, so the winner was ChrisC with his prediction of 11,250. I predicted 9,000, so I wasn’t close. In my own defense, I predicted 10,000 for June 30 and the Dow was actually 9,774, so I was very close at the end of June. I simply did not anticipate the government propping up of the market that has occurred over the summer and into September. Oh well, live and learn.

As for gold, the average prediction was $1,206 per ounce; the actual was $1,296; closest was JohnB‘s prediction of $1,205. Interestingly most people predicted a lower number than actual. Me? I predicted $1,400 for gold, so at around $1,300 I over-shot by $100. However, I did predict $1,450 for year end, and I’m feeling pretty good about that one.

In conclusion, patience. It’s very tempting to jump in with both feet now, but it’s just too risky. Buy something if you must, but don’t buy your entire position now. I am 70% cash, and I will remain that way for a month, or two, or three, or however long it takes for the inevitable correction, and then I will buy all the way down. As I’ve said before, Patience – Gold will shine, but a small pullback is probable.

Thanks for reading and contributing to the Forum; see you next week.

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