Why Wait Until Late October?

10/13/2011 3:56 pm EST

Focus: MARKETS

Donald Vialoux

Founder, Tech Talk

Tech Talk's Donald Vialoux shares his short- and longer-term outlooks for the stock market in this exclusive interview with MoneyShow.com, and explains why he will be watching stocks closely in late October.

What's happening in the market now and what should you do about it? We'll ask Donald Vialoux. Hi Donald, how are you?

Great, Howard. It's a very interesting time in equity markets right now.

Yes, it is.

Right now is the time from May to October where markets are on average very, very volatile, and we certainly have that volatility once again this year. I call the best time to own markets is you buy when it snows in October and you sell when it goes in May, but in between, very volatile markets, and very difficult to figure out what's happening in markets, so it's a good time to have a large position in cash.

Okay, but last year that broke the rule. Didn't it? I mean, last year we sort of bottomed around July 2, sort of bumped around a bit, and then after at the end of August, we really started taking off, and so you probably missed something by not being in the market during that time, right?

Actually, a very good observation, because last year was an anomaly. See, during the period from May to October, there is usually a series of either nonevents or negative events. Last year, those negative events were offset by QE2, and therefore, that results in the market surge.

Right. That was Bernanke's speech that was in late August last year.

That's correct, and that's when markets really started taking off. Usually in the month of September, you have a series of negative events. You have analysts reducing earnings estimates, you have hurricane season.you have consumer sales starting to decline during that month.

Last year, because of QE2, all of these things changed very rapidly. So last year, the opportunity to enter markets actually came earlier than usual.

Okay. So, basically, you told me before we started taping this that you had actually gotten pretty much out of the market in May, and what are you waiting for? You're waiting just for the calendar to turn; you're waiting for any signals. What kinds of things would get you back in more?

On average, the period of seasonal strength is from October 28 to May 5 of each year. During that period, there are a series of positive annual recurring events that have a positive impact on equity markets.

Looking at this year, third quarter results are not going to be very good. Estimates are currently too high. They're going to be coming down. So you want to wait until after three-quarters of the results are out of the way.

So right around the end of October this year, we will be lined up for the next move on the upside for equity markets, both in Canada and the United States.

So both markets move in tandem in those patterns.

Yes, they have virtually identical buy and sell signals each year.

Okay, so also, what stage are we in of this bull market, or whatever it is? I mean, some people say we are still in a bull market and we are moving into a late stage, and other people say the cyclical bull market is over. Where do you stand on that?

See, equity markets have a 60-year cycle. Good cycles, bad cycles, good cycles, bad cycles. The last good cycle was from 1982 to 1999. That was the technology cycle, and things were great.

Right, right, right.

But now we've gone into one of these periods of time where there is a lot of uncertainty. And this uncertainty period will go from the year 2000 to the year 2015.

Right. I was thinking more in terms of the shorter cycle. To some people, we are in a cyclical. There are cyclical bull markets within that and cyclical bear markets within that. I mean, where do we stand now in terms of that?

Well, it turns out that we don't actually look at markets from a bull or a bear cyclical perspective. We look at seasonal opportunities that will occur.

So for example, in the summertime, when markets normally don't do very well, there actually are certain sectors that do very well. Things like agriculture do well. Things like gold do very well.

The key is to be into these sectors at the right time of the year and then just to go onto other sectors going forward. Most of the seasonal trades are from October to May of each year, but there are actually some seasonal trades that you can do in the summertime as well.

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