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Why We're Expecting a Big Stock Decline in the Next 10 Days

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Growth Stock Wire's Jeff Clark makes his case for defensive market moves now

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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,
Jeff Clark
Growth Stock Wire
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.

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