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Why I Expect a Big Stock Decline in the Next 10 Days

By Jeff Clark
Thursday, September 29, 2011

As if you needed another reason to be nervous about stocks... It's the Jewish New Year.
There's an old adage on Wall Street that goes, "Sell on Rosh Hashanah and buy on Yom Kippur." The saying highlights the seasonal weakness that typically occurs between those two Jewish holidays. It's similar to the "Sell in May and go away" maxim we hear every year.
No, stocks don't always decline during this time of year... But it happens often enough that there's a saying about it.
Last night marked the start of Rosh Hashanah, the Jewish New Year. It also kicked off a 10-day period known as the Days of Awe. This is a period of intense reflection for people of Jewish faith, which ends on Yom Kippur (the Day of Atonement).
The adage originated many decades ago when it was common practice for Jewish investors to sell their stocks on Rosh Hashanah so they could concentrate on their prayers without the distraction of having to worry about the stock market. They would then buy back their positions after Yom Kippur – when they could concentrate on the stock market again.
Nowadays, any weakness in the stock market during this time is likely more a matter of coincidence than it is the result of millions of Jewish investors dumping their portfolio holdings. But stocks still tend to decline during this period.
Going all the way back to 1915, the Dow Jones Industrial Average has declined an average of 0.62% between Rosh Hashanah and Yom Kippur. That is statistically significant weakness for a 10-day period.
The declines have been much worse during periods of economic uncertainty – when the market was already struggling. For example, in 2008, the S&P 500 dropped 18% during the Days of Awe.
For the past several weeks, I've been arguing that the market needs to make one more move down to, or slightly below, the early-August lows in order to finish up its "post-crash" pattern and set the stage for a year-end rally.
The stock market is already highly charged over the headlines coming out of Europe. Investors are skittish over the market's recent volatility... The Volatility Index is persisting at elevated levels... And the global markets are coming unglued.
These are the types of conditions that often lead to exhaustive and capitulatory declines. We've been waiting for a move down to 1,100 or lower for the S&P 500. If it's going to happen, it might very well happen during this seasonally weak time of the year.
Best regards and good trading,
Jeff Clark

Further Reading:

Earlier this month, Jeff told Growth Stock Wire readers to take profits now. He noticed a striking similarity between August's stock market crash and the crash of 1987. "If it unfolds like 1987 did, the next few weeks could be rough," he wrote.
And though the S&P 500 fell more than 7% from peak to trough last week, it's not all bad news for investors looking for values. On Tuesday, Jeff noted silver had recently dropped 26%. "Taking advantage of extreme conditions is how you make money in precious metals." Read his advice here: Get Ready to Buy Silver.

In The Daily Crux
Market Notes
Gold is still the best-performing asset in 2011... "real money" is up 15% this year while most stock indexes and commodities are down.
Treasurys post biggest four-day selloff since January 2009.
Utility giants Duke and Progress Energy hit fresh multi-year highs.
Chinese "glamour stocks" Baidu, Sohu, and Sina are sitting just above six-month lows.
Market Watch
Symbol Price
S&P 500 1151.06 -2.1% +0.3%
Oil (USO) 31.25 -3.5% -5.9%
Gold (GLD) 156.22 -2.8% +22.2%
Silver (SLV) 28.87 -7.4% +35.6%
U.S. Dollar 77.75 -0.5% -1.5%
Euro 1.35 -0.4% -0.3%
Volatility (^VIX) 41.08 +8.9% +81.8%
Gold Stocks (^HUI) 520.09 -4.5% +1.3%
10-Year Yield 2.00 -1.0% -18.7%

World ETFs
Symbol Price
USA (SPY) 115.14 -2.0% +2.4%
Japan (EWJ) 9.54 +0.0% -2.7%
Canada (EWC) 25.76 -2.9% -5.8%
S. Africa (EZA) 59.82 -2.4% -7.5%
Taiwan (EWT) 12.09 -2.0% -8.0%
S. Korea (EWY) 47.42 -3.6% -9.6%
Singapore (EWS) 11.28 -3.4% -11.4%
Israel (ISL) 14.00 -3.7% -11.6%
Lat.America (ILF) 40.05 -2.8% -17.7%
China (FXI) 32.49 -3.8% -22.0%
Russia (TRF) 15.01 -3.3% -22.6%
India (IFN) 24.23 -2.4% -26.2%

Sector ETFs
Symbol Price
Internet (HHH) 78.54 -0.1% +22.1%
Retail (PMR) 19.72 -1.7% +13.3%
Big Tech (QQQQ) 54.53 -1.5% +11.3%
Utilities (XLU) 33.46 -1.0% +10.6%
Consumer Svcs (IYC) 66.13 -1.5% +8.7%
Health Care (IYH) 65.69 -1.8% +5.0%
Big Pharma (PPH) 65.07 -1.1% +3.9%
Real Estate (IYR) 51.18 -2.5% +0.1%
Media (PBS) 12.12 -3.4% -1.1%
Software (PSJ) 22.21 -2.6% -1.6%
Industrials (IYJ) 55.94 -2.6% -2.0%
Oil Service (OIH) 107.80 -5.2% -2.3%
Defense (PPA) 16.54 -2.1% -2.6%
Telecom (IYZ) 20.63 -1.3% -2.9%
Semis (PSI) 12.57 -3.4% -4.4%
Biotech (PBE) 18.53 -2.8% -4.8%
Transportation (IYT) 76.45 -2.9% -5.0%
Water (PHO) 15.44 -2.5% -5.9%
Basic Mat (IYM) 58.71 -5.1% -8.4%
Construction (PKB) 10.14 -3.3% -9.8%
Insurance (PIC) 13.07 -1.5% -12.6%
Financials (IYF) 44.53 -2.8% -13.7%
Nanotech (PXN) 6.46 -4.2% -29.0%
Alt. Energy (PBW) 5.74 -4.5% -39.6%

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