One of the themes we like to touch on in this column are heuristics. Myths that become Wall Street rules of thumb have existed for as long as there have been trading desks. They are legion, they pop up regularly and most of the time they are terribly wrong. Woe to the unwary trader who relies on the urban legends to inform an outlook.

We have at various times examined the Hindenburg Omen, NYSE margin, economic conspiracy theories, buybacks, sentiment, single-factor indicators and more.

Many of these trading myths now come with what looks like the imprimatur of quantitative analysis. But as British Prime Minister Benjamin Disraeli is reputed to have said, "There are three kinds of lies: lies, damned lies, and statistics." As we have noted before:

The problem that arises all too often is that this approach is statistically bogus. The data gets cherry picked; backward-looking analysis gets form-fitted to what just happened and has no meaning for what is most likely to happen in the future. Confirmation bias and selective perception can lead an investor to lose objectivity, choosing an approach that justifies an existing portfolio mix, as opposed to objectively evaluating the data. 

All of which leads me to the recent chatter about the Death Cross, which happened in yesterday's trading. This takes place when a short-term moving average crosses a longer-term moving average -- the 50-day and 200-day averages are standard, but it can be any combination of shorter- and longer-term averages. Note that some technical analysts have refined this to distinguish between crosses of a rising or falling moving average.  See the following chart:

David Fuller's view

This is a welcome column by Barry Ritholtz who provides statistics to back his view in the second half of his article.  Market commentary can be a colourful field but as a general rule, a lagging indicator with a Halloween name is wrong at least as often as it is right. 

What about this time?

May 1^st to end October is, on average, a period of seasonal underperformance more often than not, as I have mentioned every day for weeks.  Trading in the developed Western markets tends to be lighter during the summer months.  This can cause markets to vacillate between reassuringly boring to alarmingly volatile. 

US Stock market indices have lost their uptrend consistency: DJIA, S&P 500, Transports and Russell 2000, but the strong CCMP is an exception.  There is still a risk of that long absent 10% plus correction between now and the end of October.  However, it could also take place in the form of sharp rotational corrections among individual sectors and shares, as we have seen in recent years.  From November through April 2016 seasonal factors become more favourable, not least due to the Presidential Election cycle.