Was October’s 5% down move of the Dow Jones Industrial Average the start of a new trend?

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November 5, 2018 11:48am NYSE:DIA

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From Dana Lyons: Everything was going just fine for investors at the end of September (well, maybe not under the surface). The major averages closed right near all-time highs, just in time for quarterly 401(k) statements. Then October happened and, well, you know…


a nearly double-digit drawdown intra-month in the Dow Jones Industrial Average (DJIA) and an eventual loss of more than 5% for the month. But, that’s just one bad month, right? Not the start of a new trend or anything? Certainly, only the future knows the answer to that. However, the past may suggest that it may be more than a 1-month hiccup.

Why do we say that? Take a look at the 14 other months in the past 100 years when:

  1. The DJIA set a multi-year high one month, then
  2. Suffered at least an 8% intra-month drawdown and closed down at least 4% the next month.
image

Now, we’ll show the months and aggregate performance in the table below. However, the best message is probably drawn by a glance at the chart above and the inordinate number of significant tops marked by such month “rug pulls” — including cyclical tops in 1929, 1937, 1946, 1965, 2000 and 2007. (The 1-month return signifies the drawdown month).

image

So will history repeat again in 2018? It remains to be seen. We certainly aren’t going to hang our hat on this single data point. However, it does fit with much of our other analysis and, because of that, we would not put it past the bears to form another significant top here.

If you’re interested in the “all-access” version of our charts and research, we invite you to check out our site, The Lyons Share. FYI, given the current treachorous market landscape, TLS has extended our CRASH SALE through this weekend. So considering the discounted cost and the current treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.


The SPDR Dow Jones Industrial Average ETF Trust (DIA) was trading at $253.87 per share on Monday morning, up $1.41 (+0.56%). Year-to-date, DIA has gained 3.48%, versus a 2.57% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 82 ETFs in the Large Cap Value ETFs category.


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