Saturday, September 5, 2009

Will September Markets Be Bullish?

Below is summary of key points extracted from an interesting US newspaper column published on September 4, 2009, written by a market timing expert:

  1. The market has done quite a job of ignoring its history so far this year.
  2. January and February, usually positive winter months, it experienced a sizable loss of 25% .
  3. In historically favourable period, not launching into a sizable rally until March.
  4. Defying its historical “Sell in May and go away” history, the rally continued to roll right through May.
  5. It did decline for four straight weeks beginning in June, following its history of “If May doesn’t get you, June will”.
  6. The rally then resumed in July, also not unusual, as there is usually a minor summer rally.
  7. But the summer rally continued through August, the first month of the market’s historically worst three-month period of August, September, and October.
  8. That has a lot of people claiming that since the historical patterns have been off so much so far this year, they will therefore be off for the rest of the year. Don't be too sure of that.
  9. The historical pattern for the rest of the year is that September tends to be a down month, leading into a correction low in the October/November time-frame, which is then followed by a significant rally from that low to the end of the year.
  10. There are reasons to believe the market is setting up to follow that pattern. We have an unusual overbought condition of the major indexes above their 20-week moving averages that is highly likely to bring a decline back down at least to the moving average, and most often overshooting on the downside.
Hmmm... so what is his forecast for next week?

  • The historical pattern for employment report released yesterday is a triple-digit kneejerk reaction by the Dow in one direction or the other. Last night, market followed with its typical triple-digit reaction to the report, Dow up 101 points by afternoon.
  • The other side of that pattern is that whatever the direction of the market’s initial reaction to the jobs report, it is usually reversed within a day or two, and the market goes back to focusing on whatever were its driving forces before the jobs report.
  • Next week is also the week before this month’s options expirations week, and the week before tends to be negative.
Hmmm... we shall see.

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