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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (30338)	10/17/1999 9:35:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

How bad is October? Within the last 12 years, in 1993 and 1996 all days in October were higher than the last day of September. In seven years the lowest closing value in October was 0.47 to 4.44% lower than the last day of September, occurring between October 4 and 13 in six of these years, and on October 26 in 1995. There were three years which were worse - a drop of 5.66% to October 8 in 1998, a drop of 7.42% to October 27 in 1997, and the worst, a 30.10% drop to October 19 in 1987. Therefore it seems to me that, excluding 1987, the dangers of October are somewhat exaggerated. So far this month we are down 35.3 points or 2.75% from the close of September 30 - in a tremendously oversold market. The October option expiration has passed, and those who were short on October calls were obviously safe - but so were those who were short on October puts below the 1220 strike price, as mentioned in previous columns. The question is, where will we go from here on. The large price drop in the last week was partly due to option expiration, and partly due to the fact that the market remains jittery about the possible Fed action in the future. As we mentioned repeatedly, this will continue until the Fed raises interest rates again - until then every bad economic number will just create more and more turbulence (why, oh why, didn't the Fed raise interest rates in October and get it over with?). However, we are very oversold - and this situation, at option expiration, suggests a probable (but not a certain) turn-around in the market. One can consider shorting November 1100 puts (in jeopardy only if the market drops 14% from Sept 30) or November 1050 puts (in jeopardy only if the market drops 18% from Sept 30). On the basis of the past 50 years' history, we have a 2% chance of being in jeopardy with shorting puts at such low levels. We would not get similar returns on shorting calls, and a sudden upmove could cause an upshot of major proportions, propelling us to new highs. <i/> glen-net.ca