November: Trend following tendencies

November  is  one of the best performing months for the major stock indexes and also the beginning of a strong multi-month stretch across all of the stock indexes. It is the month many technicians who subscribe to the adage “sell in May and go away” choose to re-enter the market.

November is the second strongest performing month in the S&P 500 since 1950 and the third best month in the Dow Jones Industrial Average (1950) and Nasdaq Composite (1971).

This tendency has held up over the last decade. Since the 2008 credit crisis crash, the S&P 500 has been positive in six of eight Novembers with the two down years registering only marginal single digit losses.

A major key to the performance of the stock market in November is what happens in the previous months. As noted here, September is the worst performing month for stock indexes (see “Dog days give way to down days,” MT September 2017) and October is also a weak performing month with a tendency for huge swings. As a result, November performance has a low bar and often benefits from corrective rallies. However, in the major crashes over the last 30 year —1987, 2000 and 2008—the market continued sharp sell-offs through November; so if we get an October crash, there is a decent chance that there will be no November recovery.