The ides of September

Posted by Mark Leibovit - VR Trader

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This Excerpt from Mark Leibovit’s VR Silver Newsletter covering Stocks, Bonds, Gold, US Dollar, Oil CLICK HERE

Stocks – Action Alert:

The stock market rose Friday on good trade data out of China, another round of stimulus in Japan, and higher than expected wholesale inventories and sales. The Dow advanced 47.53 points, or 0.46%, to 10462.77, its highest close since Aug. 10. The Standard & Poor’s 500 index rose 5.37, or 0.49%, to 1109.55. The Nasdaq Composite edged up 6.28, or 0.28%, to 2242.48. Volume was still below average but breadth was positive.

With oil and natural gas rallying, Energy stocks (XLE +1.04%) led the advance on Friday. In contrast, Utilities (XLU -0.57%) were weak as PG&E fell (see below) following an explosion in San Francisco involving a natural gas pipeline owned and operated by the California utility. Traders moved to economically sensitive stocks with Consumer Discretionary (XLY +0.84%) outperforming Consumer Staples (XLP +0.47%). However, there was no sign of a move to risk as Small Caps (IWM +0.31%) did worse than Large Caps (SPY +0.51%).

As a result, one must draw the conclusion that the market is undecided here whether to break through resistance and trade up to new multi-month highs. Traders continue to worry about the weak economy. Even if it is growing, the growth is so slow that it will be hard for corporations to maintain their earnings growth.

With the market near the upper end of its trading range of the last four months, the shorts are getting more active. NYSE Euronext Inc. said late Friday that short interest on its exchanges increased over a two-week period. Short interest rose to 14.36 billion shares as of Aug. 31, compared with 13.74 billion shares as of Aug. 13. Current short interest represents about 3.76% of all shares outstanding. Nasdaq OMX said late Friday that short-interest positions on the Nasdaq exchange rose over a two week period. As of Aug. 31, there was short interest in 7.61 billion shares of 2,878 listed securities, compared with 7.22 billion shares in 2,882 securities as of Aug. 13.

A week ago it appeared that we were going to possibly experience more upside, i.e., a positive September or at least for part of September. I cannot compare today’s action with the pre-1987 Crash period, but I can’t help recall how the market acted well into mid-September 1987 and lo and behold everything changed very quickly as October unfolded. A turndown should be accompanied by broad-based Negative Volume Reversals (Leibovit Volume Reversals as referred to in my upcoming book). Traders should wait for that signal, though Platinum subscribers know that I am apparently prematurely short via inverse ETFs with a tight stop.

From Don Don Vialoux from JovInvestment Management:

“September has a history as the weakest month of the year for world equity markets. It also has a history of moving higher until just after the Labour Day weekend. Following is a quote from Brooke Thackray’s forthcoming book that offers a greater insight:

“September – the story of two parts”
First 19 days – Last 11 days.

The media often publishes articles about the poor performance of stock markets in September. They are correct, on average it has been the worst month for the S&P 500 from 1950 to 2009. Nevertheless, it is important to know that the first part of the month has performed differently than the second half of the month. The S&P 500 from 1950 to 2009 has produced an average gain of 0.2% from September 1st to September 19th and has been positive 53% of the time. On the other hand, the S&P 500 produced a loss of 0.8%, on average from September 20th to September 30th and only has been positive 40% of the time”.

Equity markets have a history of moving lower in September during a mid-term election year. Weakness is attributed partially to political uncertainty. The traditional ramp up of political TV ads in the first week in September occurred once again this year. “Attack ads” are common. Look for more of the same until mid-term election day. Attack ads add to political uncertainty, which add to economic uncertainty which adds to stock market uncertainty.

Analysts are responding to economic slowdowns in the U.S. and Canada by reducing earnings estimates. The frequency of companies reporting negative guidance, analysts reducing third quarter estimates and analysts downgrading equities (particularly in the technology sector) have increased significantly during the past two weeks.

Investors and corporation remain flush with cash. When confidence in a recovery returns (presumably after release of third quarter earnings reports), the stage is set for an important intermediate recovery in equity markets.

History shows that the strongest performing quarter for U.S. equity markets in the four year presidential cycle is in the fourth quarter in the year of a mid-term election year. Median return since 1929 is almost 8%. Second strongest quarter is the first quarter in the year following a mid-term election. Median return is approximately 5.3%. Third strongest quarter is the second quarter in the year after a mid-term election. Median return is approximately 4.8%. History is about to repeat. Be sure to visit Don Vialoux’s Timing the Market Website


Marks VRTrader Silver Newletter covers Stock, TSE Stocks, Bonds, Gold, Base Metals, Uranium, Oil and the US Dollar.

Mark was named the #1 Gold Timer for the one-year period ending March 25, 2008 by TIMER DIGEST.

More kudos – Mark Leibovit was named the #1 Intermediate Market Timer for the 10 year period ending in 2007; the #1 Intermediate Market Timer for the 3 year period ending in 2007; the #1 Intermediate Market Timer for the 8 year period ending in 2007; and the #8 Intermediate Market Timer for the 5 year period ending in 2007. NO OTHER ANALYST SURVEYED APPEARED IN ALL FOUR CATEGORIES FOR INTERMEDIATE MARKET TIMING AS PUBLISHED IN TIMER DIGEST JANUARY 28, 2008!
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