Keystone's September Seasonality

The month of September is typically down about 1.2% and is the worst month of the year for the Dow Industrials.  September is typically a weak month for the over-the-counter and small cap stocks.  In general, the largest market gains are realized November thru April with flat returns May thru October. Thus, the markets remain a long two months away from the start of the yearly strength.

Typically, at the start of any month, the first and second day of trading sees long buying; by lunchtime of the third day this buying is finished. Currently, due to the Labor Day holiday upon us, markets are typically bullish the two days in front of a three day holiday weekend. Thus, market buoyancy would be expected today and tomorrow, the first two days of September. Watch the early September behavior closely because if three up days occur to start the month, the indexes are typically down the folllowing two days.

OPEX Friday's are typically up, that is 9/16/11. Typically, during OPEX week, traders go long Tuesday to sell Wednesday, that is 9/13/11 into 9/14/11.  Q4 is strong for technology and biotech but that remains one month away.  Q3 ends this month on 9/30/11 so expect window dressing shenanigans. This window dressing was very active at the end of Q2 in June. Money managers move towards the winning plays during the last few days of the month so their books look good for the investors. If Q3 is up for the markets, Q4 is up about 74% of the time. This year, however, Q3 will probably not be up.

Drilling down for September, as a blanket rule, this month is the worst month of the year for stocks. The first Friday is typically a triple digit day for the Dow Industrials, largely due to jobs data, but in this recent environment, a triple digit move tomorrow will not be a surprise. Congress will be back in session which is bearish for markets.  Considering the childish games over the last day with the President trying to schedule his jobs speech on the same night as a pre-scheduled republican debate, the budget talks this month are likely a drag on the markets.

Mutual funds rebalance their portfolio's each year in the late September early October time frame. The high in 1929 was marked by the day after Labor Day, thus, this day can be a tumultuous turning point each year. Labor Day may chart the path forward for stocks into year-end.  Typically, markets move down between OPEX and mid-October. As a rule, traders tend to avoid buying stocks between September and mid-October.  The week after OPEX in September has been down about 80% of the time so keep this in mind for the week of 9/19/11. An old Wall Street adage is "Sell Rosh Hashanah and buy Yom Kippur," although some traders will tell you the opposite. Rosh Hashanah begins 9/29/11.

For commodities, typically you sell natty around Labor Day and buy oil. Natty is bot again in May for the summer air conditioning season. August thru October is typically up for gold. September is the Indian marriage season and India consumes one-third of the world's gold supply. China gold sales also pick up during this time period.  Approach this year cautiously, however, since the gold behavior is far from typical and gold price is actually at the mercy of the CME gold markgin hikes should they continue.

Even though history tells us that September is the worst month, in recent years, about 7 of the last 8 years, September has actually finished up. September 2010 was the best September since 1939. The last couple days of this month the markets typically see a pull back of about 0.4%, about 5 spoo's. Watch back-to-school spending since this is a preliminary indicator for holiday sales. Currently, the back-to-school sales have not been particularly active, consumers are more selective and careful with their dollars, thus, at this juncture, points towards soft holiday spending.

In conclusion, September is the worst month of the year for the markets, typically down about 1.2%, although recent years this trend has not held. Labor Day is a key pivot point for the intermediate market trend. The week after OPEX, 9/19/11, is typically down 80% of the time.  Congress is back in session which is bearish. Watch for Q3 window dressing from 9/23/11 on which will buoy the names that have done well.