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When September Flexes Its Muscle at Trader’s Narrative




When September Flexes Its Muscle


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city slickers Curly - Jack Palance Billy Crystal
From City Slickers

This is a guest post by Wayne Whaley (CTA):

Before I share some statistics with you on the impact that positive September’s have on the last quarter, I’m reminded of a scene in one of my favorite comedies, “City Slickers”. Billy Crystal’s character Mitch fancies himself a cowboy and in an attempt to bond with Jack Parlance’ character Curly he pulls up next to him on the cattle run and whimsically wishes Curly a good day and ask him if he’s killed anybody today. Curly stares at Mitch, unamused and responds, “Nope but the day ain’t over yet”. Mitch fades back into the pack of his wannabe cowboy buddies, fearing that he might not live through the day.

So with the fact that September is up 4.4% and still has 8 trading days remaining, I hesitantly share the following statistics with you, hoping that I haven’t jinxed the rest of the month. I preface the table with the comment that September is historically the weakest calendar month of the year and the ability for the market to buck the trend is a sign of strength for the rest of the year. The table shows all Up Septembers since 1950 followed by the percent change in both October and the total 4th quarter.

Positive Septembers vs. October & 4th Quarter (for the S&P500):
Sept seasonality positive month consequences

There were only two significant fourth quarter losses following a positive September: in 1973 & 2007. Using the logic that “if the market can buck the seasonal trend, go with the trend”, since most November-Decembers are up, the losses in 2007 and 1973 were a very timely harbinger of worse things to come.

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21 Responses to “When September Flexes Its Muscle”  

  1. 1 wayne

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    Babak
    I was amused when I saw your inclusion of the City Slicker Pic, nice touch. I’m wondering if readers got the intended reference?

    Dave,
    I threw this study together in 30 minutes this morning and I was just perusing the data again this evening and something else caught my eye.

    A lot of traders/investors are looking for the traditional 5% fall correction and notice that after Up Septs, you didn’t get one in October and only one in the 4th quarter (1973). That combined with the Mother of all Momentum Thrust gives one cause to wonder??

    And I went home short today. Hope I can at least get a pullback on Monday. Notice futures went out at a discount.

  2. 2 Dave

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    “Notice futures went out at a discount.”

    I noticed that right AFTER the bell SPY sold off. The problem is they also did that the previous Fri 9/11 & then gapped to the upside Monday 9/14. I try to pay more attention to the dissonance betw SPY & QQQQ moves after the bell. IOW, if SPY sells off & Q’s don’t i tend to think that the SPY sell-off is false. Same thing on a move up after the bell. And i prefer a move un-induced by an after-mkt earnings report.

    We will get a pullback this week, but i’m inclined to think that it will be frustratingly brief, again not enough for short sellers nor correction buyers and more importantly difficult to time.

    The problem for short sellers since March has been in order to make any money (on a risk-adjusted basis) one had to sell the high tick or near. I’ve done that in an trading range or a ST or IT top but never against the trend where i soon find myself in longs rear view mirror as they pull away…painfully…for me.

    OTOH, longs could get long at almost anytime. That’s why it’s said that “The trend is your friend”. Everyone has heard or read that, but many don’t understand its simplicity.

    Draw a channel…up or down it doesn’t matter. Put your pen or pencil down anywhere in the channel & imagine a trade AGAINST the trend. You get one shot at being right. OTOH, if you’re WITH the trend but too early or too late the trend will rescue you. The easier money is made with the trend.

    Let’s put it another way. You go to a buffet. Are you eyeing food on the buffet table or scraps on plates. :)

    Regards,
    dave

  3. 3 Dave

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    Wayne,

    Again posting this here so as not to bury it in the earlier post.

    “One of the frustrating things for people who miss the first rally in a bull market is that they wait for the big correction and it never comes. The market just keeps climbing and climbing. It feeds on itself in frenzied fashion and propels prices considerably higher for six mts or so, and sometimes longer. I work with people who now admit that we are in a bull mkt, but were waiting for a 10% correction to get in. Now they are looking for a 5% correction. Eventually they have to throw in the towel.”

    This was quite an eye opening reminder to me when i looked at the appropriate timeframes. http://www.cnbc.com/id/15840232?video=1213428476&play=1

    make sure that you are viewing “Making Money Now” with Laszlo Birinyi because CNBC’s video archive sometimes are quirky.

    Yes, i know that Kudlow is an idiot…get beyond that. :)

    Btw, the bad news is that the price that we pay is untrending mkts for a loooong stretch of time in the future (to correct the sustained upmove). As basically a swing trend trader 2004 & 2005 just drove me nutZ. I may have to look for a job in the future.

    Regards,
    dave

  4. 4 Dave

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    When the S&P Oscillator closes above 10 came from the same original source (markettells.com) as the “up Sept” info that i posted previously. However, while the “up Sept” was seasonal, this is indicator-based NON-seasonal, but they both take us to “This Isn’t Kansas Anymore, Toto”

    If “S&P Oscillator” sounds familiar to you, it’s one of the only two technical indicators that Cramer has a nodding acquaintance with (ending with a preposition). However, don’t go by his interpretations, nor was this data collection from Cramer.

    Nor is “nodding acquaintance” the same as Notting Hill

  5. 5 wayne

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    I haven’t paid the subscription price to be privy to Standard and Poor’s oscillator signals but those dates look very similar to dates generated from other measures of thrust that we have discussed recently? Without doing any analysis to substantiate, they appear to correspond to something like 10ish% moves in the S&P over a 5ish day period. If anyone has additional information, feel free to share.

    I have spent an enormous amount of time studying tape measures from the AD line, Volume, Trin, New Highs, New Lows and Price, and I found a tremendous amount of correlation in high probability signals from all of them. The key in all of them seemed to be does the market have enough testosterone to generate a 4-5 standard deviation move from the norm. If so, expect shortterm consolidation, profit taking, and then further moves forward.

    I spent some time trying to develop a model combining all of the tape signals I could measure, but eventually under the KISS concept, decided that I would personally focus on the AD measure, which seemed to have a slight edge. In statistics parlay, we call this minimizing the degrees of freedom. To each his own. The proof is in the pudding.

    Under almost any such tape measure (oscillator), we have had two or three high probability signals this year? Although certainly not infallible, it seems pretty evident what the tape is telling us.

    I have struggled to find “highly reliable” Intermediate Bear Market tape indicators??? They are priceless. The question is how far can this market go? But I think for the timing being, it is safe to say (paraphrasing my grandfather), that this market is going to be a tough puppy to keep on the porch.

  6. 6 Dave

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    Wayne,

    Did you see my previous post about Dow Awards ?

    As my heroine Maggie Thatcher, the Iron Lady, said to Bush 1 “Now is not the time to go wobbly”.

  7. 7 wayne

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    Dave

    Thx for the link. It is on my radar. I will have to do some exploring to see if I can come up with something original enough to submit. Give me a couple of months. Such endeavors can be a distraction from trading, but is probably something I need to make a commitment too.

    My niche is that I have a 3000 line computer code that I have developed over the last 15 years that attempts to do pattern recognition on 15 of the 50 or so different indicator angles I have studied. What I do differently than most is the computer model tells me what is positive/negative, rather than vice versa.

  8. 8 tradeking13

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    Isn’t there also a saying that “As goes January, so goes the rest of the year.” That hasn’t quite worked out this year, has it?

  9. 9 Babak

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    Dave, where on Kirk’s site does he mention this? was it a while ago? I’m just curious as to some further context. thanks

  10. 10 wayne

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    tradingking

    the worse January in 60 years. although followed by a very weak Feb, clearly a big failure for the 12 month signal.

  11. 11 Dave

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    Babak,

    from Kirk’s Twitter; not from his regular site

  12. 12 Dave

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    Kirk now has “When Sept Flexes…” on his Twitter which is kind of funny & somewhat circuitous since my posting of his link originally led to Wayne’s post.

    It reminds me of a cartoon of two little boys in a playground in Beverly Hills. The first kid says to the second kid “My old man can beat your old man.”

    The second kid says to the first kid “Your old man is my old man.”

  13. 13 wayne

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    “circuitous”,

    Like Muhammad Ali once said referring to an adjective he was unfamiliar with, used by Howard Cosell to describe him, “If that’s a good thing, then I’m that too”.

    But seriously, very hard to come up with completely original stuff. Kudos to those who do. Most of us, get our inspiration from somewhere else and just need to make sure and give appropriate credit.

    Even Isaac Newton once said, “If I have seen further than others, it is because I have stood on the shoulders of giants”.

    (not intending to be presumptuous enough to compare any of our work to Ali or Newton)

    Dave, 12:20 eastern, still in short position, Fixing to start studying Tuesday.

  14. 14 Dave

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    Wayne,

    There you go being defensive again. Speaking of, what a great play Ray Lewis made yesterday,

    You could invent the square wheel.

    I added to longs this morning. Q’s already went to a NH for the rally. I’ll be lightening up on leaders & buying laggards.

  15. 15 wayne

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    Dave,

    previous comments were meant to make fun of myself for not what the hell circuitous meant.

    Went flat on the close,

    Research right now is into reverse thrust signals.

  16. 16 Babak

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    Dave, thanks, yeah I did see that on his twitter feed. MarketTells has great stuff.

  17. 17 wayne

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    Dave/Babak
    I was short Monday on very weak Monday after September expiration and Monday after Triple witching stats. Glad to get back to flat before I got hurt. Recall that we have discussed “If market trend defies seasonal trend, go with market trend”. Probably, applies here as well.

    I hope daily model will let me get long soon, but will give it another day or to make sure post expiration pullback is over, and this 3rd week in Sept is historically so weak as well. I historically sit out about 25-35% of days. I would rather be out and wishing I was in, than to be in and wishing I was out. Will spend tomorrow playing with numbers.

    I have struggled for 20 years to get the right balance between reliance on daily and intermediate signals for trading. The answer lies somewhere in relying more heavily on which one you are better at, but that seems to vary from year to year.

    Dave, u are adding to longs? Have you given up on looking for pullback?

    Will be interesting to see if we can post the 5% Sept that led to those gaudy 4th quarters that we circuitously posted Friday. (If nothing else, I at least expanded my vocabulary today.)

  18. 18 Dave

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    Babak,

    That you have access to MarketTells & DSI is a sign that you are not hampered by cheapness like many of us are including myself (more so in the past than present).

    Seriously, i think many men, more so than women, are not more successful because of obsessive cheapness:
    ‘In Cheap We Trust’ by Lauren Weber

    I have thought about this subject much in the past several yrs because two of the people that i know best are spendthrifts who “know the price of everything but the value of nothing”. The person described in the CNBC video above is similar to the two people that i know.

    I am fearful that we may lose “our” Wayne now that he has been discovered by Capt. Kirk & is “A” list material. And then i won’t be able to pull on his chain from time to time.

    Wayne,

    Think yesterday was just a hiccup. We have a belch ahead of us at the end of the month & a barf in mid-Oct. Think that it was Edson Gould who had “three steps & a stumble”. And now i have hiccup, belch & barf.

    Back to the grindstone for now…Double, double toil and trouble; Fire burn, and caldron bubble. Later.

  19. 19 Dave

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    BFF Wayne,

    That Q’s made a NH (for the March rally) yesterday morning & then AGAIN later yesterday afternoon was a good sign. Thought that bodes well for later Tues/Weds thru end of month. On schedule.

  20. 20 wayne

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    Dave

    How sexist of you.

    You mean this is not the ‘A’ List?

  21. 21 Dave

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    Wayne,

    This is the “real” list for two-fisted traders not for the Red Carpet crowd. Can you get me Jennifer Aniston’s autograph ?

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