Why October Is Uptober – Just Not for Stocks VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Should you worry about a government shutdown?
- Why October is “Uptober” for this one asset
- Another great stock and sector for the month
- How to play seasonals with our newest trading tool
- An update on our monthly rotation strategy… and a hint of what’s to come
The U.S. government shut down again… Do you know what happens in Canada, England, or Australia when the government can’t agree on a budget? The government resigns. Parliament dissolves. And a special election is called to appoint new leadership. There’s no shutdown of federal services. Instead, the failure of the parties to govern falls… directly on those parties. Sounds like something we could learn from… But I digress. The U.S. government has shut down because Democrats and Republicans can’t agree on a budget. The economic consequences could be severe. Approximately 750,000 government workers will be furloughed, and “a lot” of them might be fired, according to President Trump. Bloomberg estimates that a shutdown of three weeks would send the unemployment rate from 4.3% to as much as 4.7%. Not to mention, shutdowns mean delays in economic data – like the widely watched non-farm payrolls report that had been due out today from the Bureau of Labor Statistics. | Recommended Link | | | | One man is saying: FORGET most stocks and don’t panic about the market volatility. Because his strategy ignores 99% of stocks out there… And concentrates on profiting from gold – no matter what the market is doing. It all comes down to focusing on just one stock to profit from ANY movement in gold. Click here to watch right now. |  | | This all makes for fearful headlines, but here’s the reality… My colleague Lucas Downey, editor of our Alpha Signals advisory, showed on Tuesday here in TradeSmith Daily that investors ultimately respond to government shutdowns with a shrug and a click of the “buy” button. He’s right. Shutdowns are bullish. Going back to 1978, the stock market has on average gained 0.8% while the government was shut down. Shutdowns are typically short stints… a week or two at most. But even the 2018 shutdown, the longest in U.S. history at 35 days, saw the S&P 500 rally 13.5%. Take a look… 
There are even some important similarities between today and 2018. Back then, the primary concerns were – get this – high interest rates and a trade war with China. Sound familiar? We’re not all that concerned about a government shutdown from an investment perspective. So let’s set aside the food fight in Washington and find some ways to make money… Let’s turn to what some affectionately call “Uptober”… From the turn of the century, the S&P 500 has been higher about 60% of the time for an average gain of 1.3%. That’s the third-worst win rate month of the year for stocks, after August and September. So… who’s calling it Uptober? Bitcoin holders, that’s who. Take a look at the seasonality chart below for Bitcoin… Using TradeSmith’s Seasonality tool, we can see that Bitcoin has an unusual habit of going up in October: 
It has the highest win rate of any other month for the world’s first cryptocurrency – with October being positive for all but two years, 2014 and 2018. Taking both winning and losing years into account, Bitcoin returns 21% on average in October. If that happened this month, Bitcoin would end October at a new high of about $137,000. The highlighted Green Zone above is an even more consistent window. From Oct. 3-Nov. 7, Bitcoin has been higher all but one year… and for average gains of 36.7%. But we have to remember that this is a special year for Bitcoin. It’s a post-halving year. The halving is an event where the Bitcoin reward miners received for mainlining the network is halved. This cuts the new supply of Bitcoin in half and is one factor that leads to its higher prices over time. Halving and post-halving years are the most explosive for Bitcoin price gains. After the first halving, in 2012, BTC ripped more than 5,000% higher the next year. The next halving, in 2016, was followed by a bull market that took Bitcoin 1,300% higher in 2017. And the 2020 halving saw prices rise 211% that year, with another 50% gain in 2021. And going by our seasonality data, a post-halving October is even more powerful… It’s a limited dataset. But on average, Bitcoin has always been higher in a post-halving October for a 43.7% average gain: 
That would put the OG crypto at around $165,000 by the end of the month. Who knows how Uptober will go down this year. But Bitcoin has performed well so far, rising 5.7% from the September close. And history shows the winds are at its back. That’s not the only seasonal trend worth exploring… As we like to do at the top of each month here in TradeSmith Daily, let’s take a look at which stock sectors have the best track record for October. Here’s the average October performance for each of the SPDR Sector ETFs: 
The Communications sector (XLC) has had a strong October trend so far, but with only six years of data. So let’s instead look at Utilities (XLU) and Financials (XLF). Both of these show an 80% win rate in October going back 15 years. Industrials and Tech also do okay, with 73.3% and 66.7% win rates, respectively. The highest average winning trade, though, tilts the odds in the favor of Financials. On average, on the 80% of years Financials go up in October, they’ve gone up 5%. We should focus our attention there. Here are the same results for the top 10 holdings of the XLF ETF: 
Goldman Sachs (GS) has the highest win rate of the group and a solid average winning trade of 7.4% for the month. For a little more risk, we can also look at Morgan Stanley (MS) and its 8.5% average winning gain with a strong overall win rate. You could go out and trade these stocks for the next month… Or you can do even better using our T-Line breakthrough… It’s TradeSmith’s new software tool to help you find short-term deviations in fair market value for options contracts. That helps you with every option trade you make. You know if you’re paying too much… or scoring a deal. And you’ll know if an option you’re targeting to sell for income is offering an even beefier payout. Take a look at the T-Line for Goldman Sachs put options expiring next Friday, Oct. 10. The red dots are put option contracts the market is overvaluing: 
If you sold those puts, you’d bring in an instant stream of cash that’s well above what the options pricing models say it should be. For the uninitiated, selling options is like selling insurance to another trader. If you’re selling a put option, you’re offering the ability to sell the stock at a specific price and time. It’s just like how we pay our insurance company a premium to cover us in case something goes wrong. Only this time, you’re the “insurance company.” If the stock doesn’t trade at a certain level by a certain time, the option expires worthless, and you (the seller) keep all that premium. Because we know GS has a strong seasonal trend, we can happily sell that contract with the goal of it expiring worthless, picking up hundreds of dollars per contract. The T-Line helps you do a lot more than this, too. By finding undervalued options, you can speculate on them rising in value with a bit of an extra buffer. And when you pair this tool with our Constant Cash Flow algorithm, you have all the tools needed to establish a rock-solid trading moneymaker. We even have a Trade Builder that does all the work for you on any stock you want to trade, and in any direction. Our CEO Keith Kaplan recently went over all the details in the T-Day Summit. He showed how new and existing Options360 subscribers get access to this tool and other new features. And how anyone subscribing on this limited time offer will also secure access to the Constant Cash Flow algorithm. Go here now for the full details. And do it soon. We’re pulling the offer down on Monday. Finally, let’s check in on our five-stock rotation model… Dedicated readers have been eagerly anticipating the start of each month here in TradeSmith Daily. You see, we’ve been running a live experiment on one of our most powerful new trading systems. A few months back, I introduced you to a monthly rotation strategy based on a new algorithm we’ve developed. In short, you buy and hold five Nasdaq 100 stocks at the start of the month. As the month cycles over, you change them as the algorithm details… and rebalance them for equal position sizes. This simple approach takes at most just five minutes at the top of each month. And, in return, it outperformed the Nasdaq 100 benchmark by nearly five to one from 2018 through to today. That’s enough to turn a starting stake of $10,000 into more than $140,000. The blue line below is the Invesco QQQ Trust ETF (QQQ), which tracks the Nasdaq 100. The orange line is the result of buying the first five stocks the algorithm pointed to back then and holding. And the green line is the rotation strategy: 
The holdings have changed once again this month. But first, let’s take a look at how each of the September holdings performed, along with the Nasdaq 100 ETF for comparison: 
September was a good month for the strategy with a 9.6% average gain. The Trade Desk (TTD), which continues to struggle after August’s big smackdown, dragged those gains down. This month, the model has removed TTD and replaced it with Broadcom (AVGO). As a reminder, if you’re following this model, you’ll want to buy each position in equal dollar value… meaning you’ll want to use fractional shares: 
But I have some news about this strategy that, judging by our inbox, you’ve all been waiting for… First up, for our Platinum subscribers who get everything we publish now and in the future… We’ll be making this strategy available as an exclusive benefit in the coming weeks. You’ll receive not only the Nasdaq 100-based strategy, but also one for the S&P 500. Keep an eye out for news on that in your inbox. And for everyone… Keep an eye out next Wednesday, Oct. 8, for news about a unique application of this model that you cannot afford to miss. I’m not supposed to be talking about this just yet. But what I can say now is that we’ve found a way to apply this same type of strategy to one of TradeSmith’s most powerful AI applications… Creating a trading approach that would’ve turned a starting stake of just $100 into more than $50,000 over the last five years. No leverage. No options. All it took was just five equity positions at a time. You might find that unbelievable. So I’d encourage you to tune in next week for the first details. TradeSmith constantly outdoes itself with our research, and this is no exception. If you have any plans to outperform the market in the years to come, this looks far and away like the best way to do it. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily (Michael Salvatore held BTC/USD, TSLA, and BRK.B at the time of this writing.) | 
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