Seasonal Influences on the Markets in the Month of September

Posted by Don Vialoux - Timing the Market

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History shows that September is the cruelest month of  the year for equity markets.

Will equity markets weaken again this September?

Seasonal Influences

September historically has been the weakest month of the year for North American equity markets.  During the past 10 Septembers, the S&P 500 Index dropped an average of 2.76% per period, the Dow Jones Industrial Average fell an average of 3.02% and the NASDAQ Composite Index plunged an average of 5.35%. Worst performing sector was the Semiconductor sector with an average drop of 12.35% per period. In Canada, the TSX Composite Index dropped and average of 3.28% per period.

Weakness in equity markets in September is universal:

The    Nikkei    Average    dropped    2.21%    per    period,    the    London    FT    Index    gave up 3.38%, the Frankfurt DAX Index lost 4.72%, the Frankfurt DAX plunged 4.72% and the Paris CAC fell 3.91%.

Fundamental influences
A series of annual recurring events tend to influence equity markets negatively in September:

•     Institutional    investors    have    a    history    of    adjusting    their    equity portfolios after returning from holidays. In particular, many U.S. investment funds are looking for ways to improve tax efficiency of their portfolio prior to their fiscal year ending in October. They do so by liquidating underperforming securities prior before the end of October.

•     Fundamental analysts tend to reduce earnings estimates for the current year prior to release of third quarter results. Analysts have a history of over-estimating annual results in the first half of the year following positive guidance offered in annual reports and annual meetings. By the third quarter, they realize that all of their projections are unlikely to be achieved by yearend and they respond accordingly. Also, September frequently is the time when analysts either reveal or refine their earnings estimates for the following year. Initially, analysts tend to be conservative.

What about this year?

The 50% gain by the S&P 500 Index and TSX Composite Index since March 9th has been partially in anticipation of at least a mild recovery in third quarter earnings on a year-over-year basis followed by a strong recovery  in the fourth quarter. In fact, consensus earnings estimates for major companies on both sides of the border already are suggesting a much slower recovery. Consensus estimates for the 30 Dow Jones Industrial companies calls for an average (median) 18% decline. Consensus estimates for the fourth quarter calls for only a 4.4% gain.  Look for analysts to lower third and fourth quarter estimates in September implying no recovery until at least the first quarter of 2010.

Post U.S. Presidential Election Influences

History is repeating itself!

History shows that U.S. equity markets tend to move higher in a post Presidential election year during the political “honey moon” period from March to July and tend to move lower from August to mid November after the political “honey moon” period is over. The August to mid November period focuses on uncertainties caused by the President’s inability to achieve key election promises. Sound familiar?

Technical influences

Technical indicators for most equity markets either are significantly overbought or have rolled over from overbought levels. Technical indicators, that are intermediate overbought, include Bullish Percent Index, Percent of stocks trading above their 50 and 200 day moving averages, Relative Strength Index, Moving Average Convergence Divergence and Stochastics.

What to do

Equity markets are overdue for at least a shallow correction into September. Preferred strategies include taking trading profits on investments with a short term time horizon and selling at the money calls against optionable longer term holdings. Calls expiring in October and November are preferred.

Don Vailoux wrote this piece in a Full Castlemoore report titled “Wasting Away” HERE.

The report titled “WASTING AWAY”includes a lot of charts and the following:

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By Sheldon Liberman, PM, CCO
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Don Vialoux, Chartered Market Technician is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange Traded Funds. Reports are available at . Mr. Vialoux does not own Exchange Traded Funds or indices mentioned in this report.

Don Vialoux has 37 years of experience in the Investment Industry. He is a past president of the Canadian Society of Technical Analysts ( and a former technical analyst at RBC Investments.

Impossible! That’s what institutional investors say about “Timing the Market”. Mr. Vialoux will explain that, indeed, it can be done with the appropriate analysis. He also will explain why timing the market will be important during the next decade. Buy and Hold strategies are not working anymore; Investors are looking for alternatives. Mr. Vialoux will demonstrate four techniques that can be used to time intermediate stock market swings lasting 5-15 months. The preferred investment vehicles for investing in intermediate stock market swings are Exchange Traded Funds.

Comments in Tech Talk reports are the opinion of Mr. Vialoux. They are based on technical, fundamental and/or seasonal data that is believed to be accurate. The comments are free. Mr. Vialoux receives no remuneration from any source for these services. Comments should not be considered as advice to buy or to sell a security. Investors, who respond to comments in Tech Talk, are financially responsible for their own transactions.