October Curse vs. Objective Analysis: The Choice Is Yours

October Curse vs. Objective Analysis: The Choice Is Yours

October 12, 2010

By Elliott Wave International

Over the weekend, I went shopping for Halloween decorations. In the store, one of the clerks was wearing a white T-shirt with a puff-paint rendering of the Dow Jones Industrial Average. The line representing prices was the color of blood red, dripping and splashed across the front. When I asked him what it was, he said "the October Curse."

'Tis the season of stock market adages; those age-old Wall Street platitudes that claim stock prices perform a certain way during certain months of the year. The problem is, such correlations are hardly a guarantee.

Take October, for example. Yes, this month has marked some of the darkest periods in stock market history: 1929, 1987 and on. Historically, however, it's not the worst performing month. For example, the supposed "Halloween Jinx" failed to bring a deathly pallor to stocks in 2008, as the final days of that year's October saw the biggest weekly gain since 1974.

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Then there are these familiar saws of seasonal wisdom:

"As Goes The First Week of January, So Goes The Month"-- In the first week of January 2010, the stock market enjoyed a powerful winning streak. Yet, by the end of the month, prices were back in the red, circling the drain of a two-month low.

"Sell In May And Go Away" -- And don't come back 'till St. Leger's Day (September). If investors heeded this wisdom this year, they would have missed one of the strongest uptrends in stocks of the entire year from July to September.

"September Curse" -- If you think October is supposed to be bad, September is widely assumed to take the financial killing cake. Yet this year, U.S. stocks enjoyed their strongest September in 71 years!

Bottom line: Don't "buy" your trading strategy before the trend actually arrives. The choice comes down to old adages, or objective analysis. Pick the latter.

===================================================================

Remove Dangerous Mainstream Assumptions from Your Investment Process. Elliott Wave International's FREE 118-page Independent Investor eBook shows you exactly what moves markets and what doesn't. It will change the way you invest forever. Click here to learn more and download your free, 118-page ebook.

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Happy Trading!!

ForexJourney

The Yen set to fall against the Philippines peso

Whilst I am looking at exchange rate action, its noteworthy for Japanese people and Western expats living in Japan that they ought to consider buying property in the Philippines. Why? Well...the Yen is about to fall, so it would be a good idea to remit money before the currency collapses. Property yields in Japan are about 12-13% now, compared to 8% in the Philippines. The difference however is that Philippines population growth is 2% per annum, whilst Japan's is negative, and does little better than 1.5% in certain districts of the major cities.

The Philippines is attracting a lot of investment from Taiwan, China and Korea in tourism, and also a lot of business from US, Australian and NZ call centres. Aside from that, it also has a healthy exposure to expat remittances and domestic commodity production. In recent years the Philippines has been growing at 7-8%, and there is no reason why that will not be sustained.

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Andrew Sheldon www.sheldonthinks.com

The AUD play with a Japanese property twist

The AUD-JPY is not a currency I have been giving much attention to of late because my focus has been on the commodities (AUD-USD) rather than property. Though since I have an interest in Japanese (foreclosed) property, I was interested to look at the implications for the property market....which is offering yields of 12-13%.

We can see from the chart that the AUD might be strong against the USD, but against the Yen, the AUD has actually been a bit lacklustre. That is about to change. The Japanese yen is going to come under a bit of pressure as the govt there debases its currency. You can expect this to lead to a strong AUD against the yen. In fact I am expecting the AUD to rise to the previous high of Y107. This is a good long term currency trade, as you will never earn more spread interest than on this trade. With the unemployment rate 5.1% in Australia, there is actually scope for more rate increases as well. Stimulus in the Eurozone and Japan can only help Australian commodities demand.

The implication is that there is a good opportunity to trade AUD-JPY and then use your profits to buy a holiday house in Japan. Don't forget to get your Japan Rail Pass! God, I should be selling the things...I'd told so many people about them. I love trains. :) I take GPS coordinates for every station I stop at. That's right...I don't have a life. Glad you could join me though.

NZ Property Guide Philippine Real Estate Guide Japan Foreclosed Guide

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Australian dollar going to $1.15

The AUD is just about to reach parity with the USD. Followers of the currency price action might have reflected on the trends in the other currency. In this era of currency realignment, you might be thinking that the prospects for a strong USD will mean a weak AUD. I would challenge this point of view. In the short term, I would not be surprised to see the AUD find resistance at parity, but I do believe that we are looking at a stronger AUD currency in the future as a result of currency (i.e. economic) relativism. Yep, economic relativism is about debasing your currency faster than the competition. Countries like Australia have relatively hard currencies in these periods, so we can expect a sustained strong currency. I don't expect significant weakness in China. It will happily keep prospering along for decades to come. So long as there is a high household debt in Australia, we can expect measured increases in interest rates, but also a great deal of sensitivity to those rises. We will not be able to afford interest rate increases...so expect a strong currency. That is alright....all other commodity based currencies will be strong as well, so expect stronger commodity prices across the board.

I actually am expecting to see the AUD reach $1.15-1.20 in the next few years.

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Andrew Sheldon www.sheldonthinks.com

Currency market realignment coming - JPY:USD

Just as we are going to see a turnaround in the EUR, we can also expect a turnaround in the USD against the Yen. Japan has been complaining of late about its reduced export competitiveness. Of course this is just justification for printing Yen to repay the debt which is denominated in Yen. i.e. The Japanese have to debase the currency in order to inflate asset prices, in order to stimulate some spending in the Japanese economy. They will want to expand the economy in order to increase taxes (i.e. GST increase), and they will want to pay off that debt. Reforms will be easier if there is stronger economic activity.

The USD against the Yen is about to reach a yet level of 80yen. The yen has not reached this level for decades, so it will be an important achievement. For reasons already stated above, I am not expecting this support to be breached, as there is just too many reasons for the Japanese to weaken their currency. Its a case of who can be the biggest currency debaser. Unfortunately I have not got the history back to the 1970s on this chart...I just remember the forecast I made last year that it would reach this level....so its finally happened.

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Andrew Sheldon www.sheldonthinks.com

Currency market realignment coming - EUR:USD

There are some important developments occurring in the currency market. We are about to see a change from a weak USD to a strong one. Not yet, but we are close. The justification is going to be:

1. Stimulus measures in Japan which will weaken its currency

2. Stimulus measures in the EU, which will refinance Greek/Spanish debts, but also expect some broader-based stimulus.

A turnaround in the USD will of course reduce the appeal of the Dow, as competitiveness will shrink, but not considerably if the later countries are dolling out most of the stimulus. The target value is 1.45 USD for the EUR.

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Andrew Sheldon www.sheldonthinks.com