Gene Peroni's Daily Podcast

On 10/19/1987, there was no CBOE Volatility Index. That index would not be established until 1993, but if there was a VIX at the time, there likely would have been records that would not have been broken since. 

For a number of weeks now my more constructive outlook for the stock market has been based on a bottom-up perspective… 

We are just two days away from the 35th anniversary of the October 19, 1987 stock market crash. This serves as a reminder that October can be a pretty brutal month for volatility and trading swings. 

Given the hectic stream of data and information, it’s not surprising that investors are very focused on the here and now, on the hour-by-hour action in the stock market. This might be obscuring the longer-term view… 

To a certain degree the real feel of this market environment is probably dependent upon the way that one’s portfolio is positioned. I think this climate argues for strategic diversification. 

When it comes to market sentiment, there isn’t much neutral ground — that is in looking at the AAII survey, the bearish sentiment continues to elevated at levels we haven’t seen since after 2009. 

There are several factors technically and fundamentally that could promote a significant market bottom over the short run. Here are a few of the items… 

“Elasticity” and “resiliency” are terms that have not been applicable very often this year, but those two characteristics were in play yesterday. 

This year’s market action has conditioned investors to be wary of a day like yesterday when we see big gains among the major market indices…. 

Since its initial breakaway above the 34 level, the VIX hasn’t followed through and in fact has retreated back into its previous resistance range. 

Today marks the final trading day of the 3rd quarter and the last of September — historically the cruelest month for stocks — which is down ~6% among the major market indices. 

Yesterday’s broad-based rally had some technical “giddy up” but not enough to change the short-term outlook for the market. 

From a stock market perspective, Rosh Hashanah also represents an old Wall Street adage, “Sell on Rosh Hashanah and buy on Yom Kippur.” There might be some validity to that from a cyclical perspective. 

The latest weekly survey of sentiment among investors shows a bearish consensus has risen to its highest level since March 2009. 

This morning the VIX is trading fractionally above the intraday highs set last Friday. 

The market’s most recent volatility is having a greater impact on investor psyche, and is being reflected in the fear index. 

Clearly the market continues to be burdened by the headwinds of rising interest rates, but I did think we might get some kind of relief rally following the Fed’s announcement yesterday. 

Whatever high anxiety remained ahead of today’s Fed announcement probably played out in yesterday’s session. 

When assessing the market’s intermediate-term outlook — and I do have a bullish forecast looking into the 1st half of 2022 — I think that the real tells are in the rally days and not the declining sessions. 

Last week’s tumultuous market action took us to the midpoint of September — the cruelest month historically for stock — and this month is proving to be a difficult one, but I don’t think it’s going to be a game changer either. 

It may be early, but looking like this September might not be as cruel as had been anticipated earlier and not in keeping with its historical characteristic. 

Yesterday’s rallies among the major market indices didn’t change my short-term outlook for the market to remain in a restricted trading range. 

There are some indications — anecdotal and otherwise — that inflation may be starting to roll over… 

For the stock market this year, it’s been a grizzly winter, a thawing spring and a bouncing summer, and now comes along autumn which is historically the cruelest month of the year. 

Given the current trajectories of the trend lines, we could see convergences of the 50-day and 200-day moving averages among the major market indices by early to mid-October.