October is a dangerous month to invest?

As are all the other months of the year according to a quote which led to something called the Mark Twain effect as the stock market crashes of 1929, 1987 and 2008 roughly occurred or started in October. So why mention it - well I have written before about a monthly timing indicator which you can read more about in the categories section to the right under market timing and more background to and the current status of US and other markets at Doug Short's Site.

I have been keeping track of the same data for the UK this year and somewhat worryingly all of the indices in the UK have now turned negative as at the end of September based on their simple 10 month moving averages, although in most cases and for FTSE in particular, this was only to a very limited extent. Thus as Doug Short explains in his article, although this indicator has quite a good track record it can suffer from being whip sawed when markets bounce around and trend sideways as they have this year. So I'm not sure that I would panic just yet (continues after chart).

Looking at the chart of FTSE we can see that it has fallen towards lows it bounced from late last year and earlier this year. It has also broken below its 50 and 200 day moving averages, but it also did this on the previous occasions before bouncing back. Technically FTSE is also oversold as indicated by the RSI index and the Bollinger bands have also widened out.

So again inconclusive but it needs watching to see if this has been a longish topping out process before a big sell off which might be indicated by the moving averages rolling over and breaking down. Obviously there are plenty of concerns around at the moment which could cause this - in no particular order such as:

• Withdrawal of QE by the Fed
• On going tensions in the Middle East & Ukraine
• Interest rates to start rising (maybe one day)
• A General Election in the UK next May
• Ebola health scare spreading?
• Manufacturing data slowing globally
  
• Political and economic concerns in China
• European slow economic growth / deflationary pressure requiring ECB action (see meeting today) 
• Lots of over valued / over hyped IPO's this year signalling a frothy market?
  

I guess a combination of these or some or all of these could tip the market over the edge, but who knows? However, Warren Buffet and John Lee, as I mentioned in my recent review of his book and others no doubt, suggest you should ignore market movements and macro forecasting and focus on picking stocks.

Thus if you are prepared to do that then you should probably view the recent set back as a buying opportunity for the long term if you can find stocks that you like or that meet your investing criteria and are prepared to hold them for the medium / long term regardless of what happens to the market and not panic out if the market does slide further.

So if you have yet to take out or invest your ISA funds for this year with all the above worries weighing on the market, this might just be a good entry point for the long term and you might even get to benefit from a traditional year end rally from here in the short term.