Keystone's August Seasonality Factors for Trading the Markets

August is typically an up month, up about 1.3% on average, similar to the July average expectation.  August is followed by the weak months of September and October. The largest gains for any year are typically made between November and April so we remain in the summer lull period currently. On a quarterly basis, Q3 (July-August-September), is the underperforming period of the year only resulting in an average gain of 0.6% for the three month stretch. Over the last century, the Dow Industrials typically move in a sideways choppy pattern from January thru July, then rally from August into the end of the year, for the presidential election years, thus providing the bulls a slight edge this year.

August is a lengthy month of trading. Labor Day is 9/3/12 which has served as an inflection point for markets the last few years. The fourth quarter, Q4, is always best for tech so a potential tech long list can be developed during August and September. Biotech is also strong in Q4 so the same idea applies. As hurricane season escalates, consider plays such as LOW and HD, or the oil, natty and energy markets. Oil, suppliers, home improvement and insurers all get a boost from the bad weather. Typically, oil likes to rally from August into October. Retail receives attention due to back-to-school sales. The back-to-school sales enthusiasm, or lack thereof, can be extrapolated forward to project upcoming Christmas sales. Some traders go long the retail sector from Labor Day into mid October as a regular trade each year, so this would set up later in the month. Retail has already enjoyed a long run so this seasonality may not work out as expected this year.

Gold typically bottoms in August.  August thru October is typically up for gold. September is Indian marriage season and India consumes about one-third of the world's gold supply. If the monsoon season goes well and the agriculture projections are in great shape, the money will flow like water and this will boost gold sales in the fall.  However, India is experiencing a lack of a monsoon season which does not forbode well for crops. Also, a power outage effecting over 500 million people does not help. Therefore, this year, gold may not get the expected boost. Congress is in recess during August so this is positive for markets. Volatility, the VIX, tends to bottom in August which then leads to VIX upside and trouble for markets moving forward. There are two Bradley turn dates this month, 8/14/12 and 8/25/12, so pay attention on and around these dates for market trend changes.

Markets sold off the first two days of August continuing the trend from the beginning of the week so when the last couple days of the month are down, then the first couple days of the new month, a strong up day typically occurs, mainly from pent up buying from oversold conditions as well as new money being put to work at the start of the month.  Friday, 8/3/12, results in a huge upside market orgy. Housing Starts are Thursday, 8/16/12. OpEx Monday is 8/13/12 which is typically an up day. From OpEx Tuesday into Wednesday, 8/14/12 to 8/15/12, is typically a bullish period. OpEx Friday is typically an up day. Monday, 8/20/12, will tend to move the opposite of Friday OpEx. A new moon also occurs on OpEx Friday this month and markets are typically weak into a new moon. Consumer Confidence is Tuesday, 8/28/12.  A full moon occurs on 8/31/12 and markets are typically bullish going into a full moon.

Jackson Hole begins on the last day of the month (EOM), Friday, 8/31/12, as well.  All eyes and ears will be listening to Chairman Bernanke's comments or hints concerning future quantitative easing. The U.S. markets are closed on Monday, 9/3/12, in Observance of Labor Day so Thursday and Friday, 8/30/12 and 8/31/12, will be expected to be bullish in front of the holiday weekend.  U.S. markets will reopen on Tuesday, 9/4/12, for trading. September is the worst month of the year for stocks but we can review its seasonality while grilling hamburgers, and eating apple pie of course, on Labor Day.