As if you needed another reason to be nervous about stocks... last week was the Jewish New Year.
There's an old adage on Wall Street that goes, "Sell on Rosh Hashanah and buy on Yom Kippur." The saying highlights the seasonal weakness that typically occurs between those two Jewish holidays. It's similar to the "Sell in May and go away" maxim we hear every year, too.
No, stocks don't always decline during this time of year. But it happens often enough that there's a popular saying about it.
Last Wednesday night marked the start of Rosh Hashanah, the Jewish New Year. It also kicked off a 10-day period known as the Days of Awe. This is a period of intense reflection for people of Jewish faith, which ends on Yom Kippur (the Day of Atonement).
The market-related adage originated many decades ago when it was common practice for Jewish investors to sell their stocks on Rosh Hashanah so they could concentrate on their prayers without the distraction of having to worry about the stock market. They would then buy back their positions after Yom Kippur – when they could concentrate on the stock market again.
Nowadays, any weakness in the stock market during this time is likely more a matter of coincidence than it is the result of millions of Jewish investors dumping their portfolio holdings. But stocks still tend to decline during this period.
Going all the way back to 1915, the Dow Jones Industrial Average has declined an average of 0.62% between Rosh Hashanah and Yom Kippur. By my reckoning, that is statistically significant weakness for a 10-day period.
The declines have been much worse during periods of economic uncertainty – when the market was already struggling. For example, in 2008, the S&P 500 dropped 18% during the Days of Awe.
For the past several weeks, I've been arguing that the market needs to make one more move down to, or slightly below, the early-August lows in order to finish up its "post-crash" pattern and set the stage for a year-end rally.
The stock market is already highly charged over the headlines coming out of Europe. Investors seem skittish over the market's recent volatility. The Volatility Index is persisting at elevated levels. And the global markets may well be coming unglued.
These are the types of conditions that, in my observation, often lead to exhaustive and capitulatory declines. We've been waiting for a move down to 1,100 or lower for the S&P 500. If it's going to happen, it might very well happen during this seasonally weak time of the year.
Best regards and good trading,
TradeKing All-Star Commentator
Editor's note: Veteran trader Jeff Clark is author of Growth Stock Wire, a daily read providing investors with a pre-market briefing on opportunities in the global stock, currency, and commodity markets. Click here for more information… and a free report designed to hone your trading strategies.
Jeff Clark / Growth Stock Wire holds no positions in any securities mentioned in this post.
All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products.
TradeKing selects and defines as All-Stars certain independent market commentators who are recognized industry personalities and experienced traders and who provide timely market commentary via the TradeKing All-Star blog at http://community.tradeking.com/members/tk-all-star/blogs. Each All-Star commentator’s bio, related qualifications and disclosure as to their relationship with TradeKing can be found on the All-Star blog roster, available at http://community.tradeking.com/members/tk-all-star/details. The selection of All-Stars commentators is solely based on the quality and style of the content provided. TradeKing does not measure, endorse, or monitor the performance or correctness of any statement or recommendation made by independent All-Stars commentators on TradeKing.com. Supporting documentation for any claims made by an All-Stars will be supplied upon request by the author, who is solely responsible for the views expressed. Send a private message to All-Stars using the link below the profile image.
Any strategies discussed and examples using actual securities and price data are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.
Growth Stock Wire maintains a cross-marketing relationship with TradeKing.