Are you ready for the October panic?

From Matthew Carr, Editor, The Viper Alert:

This election seems like it’s been going on forever.

Thankfully, it’s almost over… The last ballots will be cast a little more than a month from now.

And, as I’ll show you below, that means traders have a great opportunity to earn a quick profit over the next month. Let me explain…

Aside from politics, this is an interesting time for investors.

The holiday season is ahead. Consumer confidence surged to 104.1 this month. Consumer spending accounts for three quarters of U.S. GDP, and the rosier view is a good sign. Americans see the labor market improving and are upbeat about the near-term future. Not only did the September reading surpass expectations, but it’s also at the highest level since August 2007…

The Federal Reserve is holding off raising rates… for now. And the S&P 500 and the Dow aren’t doing anything out of the ordinary for the month of September. The S&P, after yesterday’s 0.53% rally, is flat for the month, while the Dow is down 0.31%.

Since 2000, it’s been the worst month for stocks…

I’ve written about it before in Investment U. But just a quick recap: The S&P has declined in September four out of the last six years.

What’s happened so far is normal. It’s what we expect. And that’s good.

But this year isn’t like a “regular” year… This is an election year.

So, what does that mean for the next couple of months?

Well, let’s take a look…

Pulling the data for the S&P 500 Volatility Index (VIX) back to 1992, we see a couple significant nuggets.

I separated out how the VIX performed in September, October and November in U.S. presidential election years. Then compared that to those same three months in all other years.

And this is what you get…

During the past six U.S. presidential elections, there was an average increase in the VIX of 15.02% in September and 19.43% in October. Following those big jumps, the VIX declined in November, after the election was over.

Right now, the VIX is down 4.67% for September… well below the 15.02% average return.

And there’s an easy explanation…

These election year averages include 2000 and 2008.

And the impacts can’t be ignored.

The VIX surged 90.75% in September 2008, going from 20.65 to 39.39. That was the biggest one-month move from the VIX in any of the months examined. So, that impacts the overall average return.

Because of the possibility for something like this, I also always look at the plus-minus rates. That gives us the probability of a gain and a better understanding of what to expect.

During election years, the VIX gained in September only 50% of the time. It’s just that, when it did see gains, it was a big move… 20.3% in September 1992… 22.37% in September 2000… and 90.75% in 2008.

October and November are a different story. Over the last six presidential elections, the VIX hasn’t ended lower in October once.

On the other hand, the VIX has ended higher only once in November of an election year.

Because of the looming uncertainty, there’s been a perfect track record of increased volatility in October in election years. But once a decision is made, there’s a sigh of relief – and a mere 16.67% chance of increased volatility in November.

Compared to non-election years for these months – and the combined chance of increased volatility in September, October and November over the past 24 years – we see a couple variances…

September is September, no matter what. There’s a 50% chance the VIX will end the month higher than where it began, regardless of whether it is an election year or not.

Note that in October, outside of election years, the chance of the VIX increasing drops significantly. Since 2000, it’s been one of the best months for stocks.

That means betting on a rise in the VIX looks like a solid trade in October.

Expect volatility over the next month.

But understand that it’s not the end of the world. Once the votes are cast, and a winner is decided… uncertainty is eased, and the markets move higher. And with the backdrop of consumer confidence surging this month, we could be in store for a solid holiday season as the cloud of anxiety is lifted.

Good investing,

Matthew

Crux note: Matthew’s system of using advanced analytics to find market anomalies like the one he describes above has resulted in one of the best 3-year track records in the history of The Oxford Club. Matthew just closed his 15th triple-digit recommendation this year.

He recently created a video showing readers the most important part of his trading strategy – something called “coil points.” According to Matt, this indicator will show you when a stock has bottomed… and is ready to bounce higher. He explains everything right here.

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