October is ‘crash’ month: Will history repeat for the ASX 200?

A woman looking through a window with an iPhone in her hand.

One expert has warned that many share market crashes have historically happened in October, and investors should act accordingly.

Already, the S&P/ASX 200 Index (ASX: XJO) has sunk 5.5% since its mid-August peak.

According to Switzer Financial director Paul Rickard, it’s “no surprise” that the market has been nervous after not seeing a correction since the COVID-19 crash in March 2020.

“October is ‘crash’ month,” he told Switzer Daily this week.

“Think back to the ‘Wall Street Crash’ of October 1929, ‘Black Monday’ of October 1987, the ‘Great Financial Crisis’ that started in October 2007 or even the ‘mini-crashes’ of 1989, 1997 and 2002.”

Rickard added that September broke an 11-month winning streak for the ASX 200.

“The S&P/ASX 200 lost 2.7% over the month to be up 11.3% in 2021. With dividends thrown in, the total return comes in at an impressive 14.8%.”

Don’t worry, momentum is strong

While the market is anxious about this month, Rickard analysed longer-term movements, which still show a strong upward trend.

He took the S&P 500 Index (SP: .INX) as a gauge, as the Australian market often follows the lead of the US.

“Although the spot index value has gone below the 30-day moving average, suggesting short term bearishness, it is miles away from its 300-day moving average – about 350 index points away,” said Rickard.

“Moreover, the Coppock indicator, which is a measure of relative strength, is very positive. Bottom line: the long term trend is in place and momentum is strong.”

The numbers for the Australian market are not quite as bullish, but “shows a similar story”.

“Locally, we are looking forward to lockdowns ending in NSW, and hopefully Victoria, and data to confirm that the economic recovery is rapid.”

‘Stack of money’ with nowhere to go

According to Rickard, the Reserve Bank’s message that interest rates would not rise until at least 2024 means “there is a stack of money moving into the share market”. 

“In October, this is being boosted by $8 billion from the Commonwealth Bank of Australia (ASX: CBA) and Woolworths Group Ltd (ASX: WOW) buybacks, and record dividend payments from major resource companies including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG),” he said.

“One key watch point will be whether the iron ore price can stabilise around the US$110 a tonne level.”

Rickard’s conclusion is that while October could look “a little scary”, investors will buy up bargains after any significant dips to push prices back up again.

“While we will take our lead from the US, the most probable call is to say that by the end of the December quarter, the nervousness of September and October will look like a good buying opportunity.”

The post October is ‘crash’ month: Will history repeat for the ASX 200? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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