Q2 STOCKS TO BUY

Indicator of the Week: The Bright Side to October Volatility Spikes

If history is our guide, volatility could jump in October before ultimately collapsing

Senior Quantitative Analyst
Oct 14, 2015 at 7:30 AM
facebook X logo linkedin


Historically, the month of October has brought with it some volatility. The two biggest monthly declines since the Great Depression were October 1987 -- on Black Monday, Oct. 19, 1987, the S&P 500 Index (SPX) fell more than 20% in a single day -- and October 2008. Below, I'll show that we are entering what is possibly a time of cyclic volatility.

Monthly Returns: Below are a couple tables summarizing monthly returns for the S&P 500 over the last 50 and 20 years. As you can see, October has the highest standard deviation of returns over each time frame. The good news is that over the past 20 years, October has been the third strongest month, going by average return, and second strongest according to median return.

151013IOTW1

Typical Year-To-Date Returns & Volatility: I thought this was an interesting chart; it shows typical year-to-date data over the past 50 years. Note that the typical return is on the left axis and the historical volatility is on the right axis. Notice also that the volatility spikes way up in October, tops out right around the start of November, and then collapses for the rest of the year. The SPX typical return chops up and down in October, bottoms on Oct. 27 (marked on the chart), and then shoots higher over the last two months.

151013IOTW2

The chart below shows the same data as the chart above, except it only shows data over the past 20 years. In other words, this one doesn’t contain the 20% single-day drop in 1987. October again shows a giant spike in market volatility, followed by a collapse in volatility. Again, the index shoots higher over the last part of the year, beginning Oct. 9. It seems that if we can avoid those big outlier moves like in 1987 and 2008, there's a good chance we see smooth sailing and gains over the next couple of months.


151013IOTW3

 
 

Which of These SUB-$5 Stocks Could 26x From Here? (AD)

He called a rare 11x on Tesla…

Then he called a 26x on Workhorse…

Then an even rarer 35x on Nio Inc…

Now Tim Bohen says these 5 tiny “America First” stocks are next up in 2025.

They’re trading for less than $5 right now.

But thanks to Elon & Trump’s new alliance…

They could be off to the races in Trump’s first 100 days.

And right now for a limited time…

You can get the names & tickers for just $1 here. (AD)

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

🚀 One Stock Pick Could Change Everything in 2025
What if one stock pick could define your success next year? Get 10 expert-vetted stocks set for 2025—plus 5 bonus picks to watch now. Get the Report →

🆕 New Options Need New Trading Strategies
Zero-DTE options are the newest (and hottest) options to trade.  Professional traders have rushed into the market and are making a mint.  Don’t get left behind - learn all about these options, how to trade them, market setups to profit from, plus much more. Download now →

👀 Revealed: 3 Defensive Stocks for Your Portfolio
Worried about the market? This free report reveals 3 under-the-radar defensive stocks for uncertain times in any kind of economy.

 

 
 

FREE Report Download

 

Follow us on X, Follow us on Twitter