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Monday, Sept 27, 2010, 11:46AM
When the market goes against the seasonal trend, you are usually well advised to grab onto the coattails of whichever direction the market is headed.
There may not be a better example of the merit of this trading philosophy than when the market ignores September’s traditional weakness.
Since 1950, September is the only month of the calendar year that has been down more times than not, negative in 34 out of those 60 years.
When the market exhibits enough intrinsic strength to overcome the traditional early Autumnal headwinds, it bodes well for equities at the end of the year when the market normally has a seasonal breeze cushioning its backside.
And as we will examine momentarily, the stronger the defiance of September’s traditional weakness, the more robust is the market’s gallop into the yearend, especially in the middle election year of the four year election cycle.
Fourth Quarters after September Soars
The more September flexes its muscle, the more impressive the end of year performance has been.
With four trading days remaining in September, the current S&P performance of 9.5% has a shot of eclipsing the post 1950 September record of 8.31% set in 1954.
Of course, we will have to see how September officially ends, but if the month can hold on to most of its gains, it is even more encouraging for the Bulls.
THE FOURTH QUARTER HAS BEEN POSITIVE IN ALL SIX PREVIOUS CASES WHERE SEPT WAS UP AT LEAST 4.5%.
The average quarterly return of 9.63% in this spot is more than the average annual return of 8.1% over the same 60 year time period.
FOURTH QUARTER AFTER A 4.5% SEPTEMBER
YEAR
SEP%
OCT%
NOV%
DEC%
4THQTR% DRAWDOWN
1954
8.31
-1.95
8.08
5.08
11.36
3.30
1998
6.22
8.03
5.91
5.64
20.86
5.66
1950
5.59
0.41
-0.10
4.72
5.04
6.50
1996
5.42
2.61
7.34
-2.15
7.77
4.76
1997
5.32
-3.45
4.46
1.57
2.44
10.80
1958
4.84
2.54
2.24
5.20
10.29
4.17
#UP-DN = 4- 2
5- 1
5- 1
6- 0
AVG%CHG= 1.36
4.65
3.34
9.63
MED%CHG= 1.47
5.19
4.90
9.03
Fourth Quarters after Positive Septembers in Mid Election Years
And as if September’s impact on the remainder of the year needed additional validation, FOLLOWING A POSITIVE SEPTEMBER, THE FOURTH QUARTER OF MID ELECTION YEARS IS 7-0 WITH A GAUDY 11.4% AVERAGE RETURN.
Note the worst fourth quarter performance was 5.04% which, even in the worst of the seven cases, is much higher than the normal 2% quarterly return.
Also the maximum fourth quarter drawdown in these seven cases was a manageable 7.05% in 1982.
4TH QUARTER AFTER UP SEPTS IN MIDELECTION YRS
YEAR
SEP%
OCT%
NOV%
DEC%
4THQTR% DRAWDOWN
1950
5.59
0.41
-0.10
4.72
5.04
6.50
1954
8.31
-1.95
8.08
5.08
11.36
3.30
1958
4.84
2.54
2.24
5.20
10.29
4.17
1970
3.41
-1.25
4.74
5.68
9.31
4.72
1982
0.76
11.04
3.60
1.52
16.79
7.05
1998
6.22
8.03
5.91
5.64
20.86
5.66
2006
2.46
3.15
1.65
1.26
6.17
1.78
#UP-DN = 5- 2
6- 1
7- 0
7- 0
AVG%CHG= 3.14
3.73
4.16
11.40
MED%CHG= 2.54
3.60
5.08
10.29
Summary
We hinted at the onset, there is strong statistical evidence that the more ferocity the month of September exhibits, the more favorable the odds are for the remainder of the year.
The normal inclination after a price move similar to September’s is to want to pocket profits and move to the sideline but all indications are when September soars, there is usually much more. |
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