Keystone's September Seasonality for Trading the Broad Markets

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 two months away from the start of the yearly strength period.

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. The Labor Day holiday is today, Monday, 9/3/12, and as would be expected and occurred last week, markets tend to be bullish in front of a three-day holiday weekend. 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 9/21/11. Typically, during OPEX week, traders go long from a Tuesday low to sell on a Wednesday high, that is 9/18/11 into 9/19/11.  Q4 (Oct-Dec) is strong for technology and biotech but that remains one month away.  Q3 ends this month on 9/28/11 so expect window dressing shenanigans late September. Window dressing is where funds and money managers sell losing stocks and buy winning stocks especially at quarter's end so the quarterly statements to clients make it look like they were trading the correct stocks.  September results are important since if Q3 is up for the markets, Q4 is up about 74% of the time. Perhaps Q3 (Jul-Sept) may receive a further boost higher from QE3 (quantitative easing)?

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 this Friday will not be a surprise. Congress will be back in session next week, 9/10/12 and on, which is bearish for 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 9/24/11. An old Wall Street adage is "Sell Rosh Hashanah and buy Yom Kippur," although some traders will tell you the opposite. Rosh Hashanah begins 9/17/11 and Yom Kippur is 9/26/12.

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 although recent data shows a huge down move in Indian gold demand while the demand for diamonds is rising. The ladies cannot resist the diamonds. China gold sales also pick up during this time period. Typically, Septermber is a good month to buy steel.

Even though history tells us that September is the worst month, in recent years, the SPX is up 6 of the last 8 years for the month of September; last year and 2008 are the two down Septembers.  September 2010 was the best September since 1939. The last couple days of this month the markets typically see a pull back of almost one-half percent, about 5 spoo's. Watch back-to-school spending since this is a preliminary indicator for holiday sales. Currently, the back-to-school sales are encouraging but the jury remains out.

On the esoteric side, there is a new moon on Saturday, 9/15/12, and markets tend to sell off into the new moon which would be 9/13 and 9/14.  The full moon is 9/29/12, and markets tend to be bullish into the full moon which would be 9/27 and 9/28.  The full moon boyancy would conflict with the expected end of month five handle pull back for the SPX anticipated.  A Bradley turn occurs on Sunday, 9/30/12, to end the month, so a window is open for a broad market turn to occur between 9/24/12 and 10/5/12, and more specifically, nearer to the turn date, so watch 9/19/12 thru 10/3/12 very closely. Keystone's Eclipse Indicator targets the potential for a large broad market sell off between 10/20/12 and 12/20/12 but we can take a look at this in more detail next month.

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 that well. Labor Day is a key pivot point for the intermediate market trend. The week after OPEX, 9/24/11, is typically down 80% of the time.  Congress is back in session 9/10/12 which is bearish. Watch for Q3 window dressing from 9/17/11 and on which will buoy the names that have done well and slap the weaker names harder.