Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don’t Let September’s Stock Market Rally Trick You

Stock-Markets / Stocks Bear Market Oct 06, 2010 - 08:11 AM GMT

By: Claus_Vogt

Stock-Markets

Best Financial Markets Analysis ArticleYou’ve probably heard the optimistic hype surrounding September’s stock market performance. The S&P 500 gained an impressive 8.8 percent during a month that has a bad reputation among stock market investors.

Measuring stock market performance on a calendar basis is indeed common. But that doesn’t necessarily mean it makes a lot of sense. In fact, it’s totally arbitrary to look only at monthly performance figures …


A balanced approach would look at rolling 4-week averages. Or in the case of this September, rolling 22-trading day intervals since there were actually 22 trading days. And if you chose this approach, the above cited 8.8 percent increase becomes a big non-event.

Investors might also find they could have been better off had they listened to an old Wall Street saying: “Sell in May and go away.” And statistics strongly support this simple rule …

Since the end of World War II, nearly all market gains have been when stocks were held from November to April. If you held stocks only from May to October, you actually lost money. This is an impressive and startling calendar phenomenon — certainly much more conclusive than looking at single-month performances.

Another noteworthy point: The low points of the latest correction fell towards the end of August. So recovering from that correction was the only force behind September’s run-up!

And when you look at the huge trading range of the past months, as shown in the chart below, the increase in stock market prices during September looks rather ordinary.

chart1 Dont Let Septembers Rally Trick You

Last month’s performance is said to be the strongest September showing since 1939. Yet if you take a closer look, you’ll see that …

September 1939 Was a Bad Month to Buy Stocks

I was curious to see the context of the 1939 September rally. Well, my findings are very sobering as you can see in the following Dow chart.

chart2 Dont Let Septembers Rally Trick You

The stock market made an important high in 1937; then took a hard plunge. September 1939 was the second high of a double-top, which marked the end of this bear market rally.

From this high the market lost roughly 40 percent until it hit bottom in 1942 when it became clear that Nazi Germany was going to lose the war. This severe bear market was interrupted and became a long, bear market rally.

Therefore, history proves that an impressive September rally can be followed by a huge bear market.

And my indicators are telling me that the September 2010 rally may very well be headed for a comparable fate.

On top of that, there are the recent …

Flash Crash Findings

On May 6 the Dow opened at 10,862.22. Its intraday low came in nearly a thousand points lower at 9,869.62. And the closing price was 10,520.32. This roller coaster was immediately named the “flash crash.” And it left many pundits demanding an explanation as to what might have caused this unusual event.

A mutual fund's single sell order was behind the infamous 'flash crash.'
A mutual fund’s single sell order was behind the infamous “flash crash.”

Now the findings of the SEC and CFTC are in. And they’re very frightening: Nothing special had happened! Yes, there was a $4.1 billion stock-futures sell order … 75,000 E-mini contracts that mimic the movement of the Standard & Poor’s 500-stock index … by a mutual fund company. Although relatively large, it was a normal hedging activity using a computer-generated program.

But since the market was already nervous due to Europe’s debt crisis, this order pushed the market into a tailspin.

This finding is exactly what I had expected …

In my June 9 Money and Markets column, I called the flash crash a warning crack, typically occurring at the end of a huge bull move. It was indeed a warning sign that the bullish forces are fading and a hallmark of a forthcoming bear market.

I also told you to take the flash crash as a harbinger of what this coming bear market will have in store for us. And last month’s gain only makes my argument all the stronger.

Best wishes,

Claus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

TraderJoe
06 Oct 10, 13:43
stocks

Claus youve been wrong on the stock market for over a year, why should you start being right now ?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in