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Why You Should Write Off September at Trader’s Narrative

Why You Should Write Off September

If you want to totally ignore September, I don’t blame you. Historically, that has been the smart thing to do:

september worst month dow jones monthly
Source: Alan Newman’s Cross Currents

The famous Wall St. adage: “Sell in May and go away!” suggests that you buy at the start of November and sell at the end of May. There is nothing magical about November, nor May.

But following the advice means that you avoid both the summer doldrums and the dangerous months of September and October (where many crashes have concentrated) and concentrate on the performance packed time of year straddling the arrival of the new year.

September is such a bad month that there is only one decade (1911-1921) in which its average performance was in the top half of the months!

It is still a mystery why September has delivered such poor performance. Equally mystifying is why the months from November to April provide the best performance.

Market Timing
The timing of the market is important mostly to investors and swing-traders. But even if you are a short term trader, it is useful to know the underlying current of the market at different times of the year.

If you’re interested in market cycles, here is more information on the four year cycle and the ten year cycle (with graphs).

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10 Responses to “Why You Should Write Off September”  

  1. 1 Timothy Sykes

    LOL, learn to short sell and you’ll look forward to Septemeber, as i do….i’ll never understand these “market players” who learn the forehand and not a backhand

  2. 2 Johan Lindén

    I think it is easy to find an explanation for WHY September is a bad month. Same reason as why post-holiday DAYS are usually bad.

    Pre-holidays and holidays (read August) are usually good months. People are glad because of the vacation.

    Post holiday people get more realistic again and also they might need to sell when they get their final bills for the holiday.

    That’s an easy to understand reason.

  3. 3 Babak

    yes, of course :) my point was regarding the tone of the market - whether you’re going long or short, it is helpful to know the current that underlies the market.

    yes, it could be a combo of psychological and holiday bill paying - although I’ve also read some time ago research which argues that it is the fault of mutual funds which have their fiscal year around September. The market is much too large to be pushed around by a few people selling to pay for christmas gifts, don’t you think?

  4. 4 Johan Lindén

    I sure don’t think that cash flow is so much different during this time, but I think coming back from holidays have a psychological impact.

    That the price of markets is decided by supply and demand is just totally BS.

    It’s easily proven that that is not the case. Say for instance that during the hours the market is closed. Something very negative happens. When the market opens the demand/buyers and supply/sellers might decide that the right starting price is 10% lower than the previous day.

    The demand to buy or the supply of selling is actually not changed at all.

    Still people think that! That’s annoying! But I guess, that’s why some people make all the money and most people don’t.


  5. 5 Moyo

    I never knew there was a historic re-occurrence of September being a bad month for the equities, it just looked to me today that tomorrow will be a bad day, since today’s trading set up for that.

    Since June the S&P has been range bound and the equity market doesn’t do well with range bound trading…..

    I guess now i’m more excited about taking my short position for tomorrow

  6. 6 Babak

    Johan, so if not supply/demand, what then drives the market?

    Moyo, yup, September is the worst month historically, but that doesn’t mean that history will repeat - it will more likely rhyme ;)

  7. 7 Moyo

    point taken Babak, however the S&P doesnt look like it can sustain a rally, there doesnt look to be any fundamental support for upward price action in the S&P. The S&P has not gone anywhere since June, and with the continuous drop in oil, it hasnt been able to sustain a rally. All of that are bad signs to me, i’ll continue to watch it however :D

    What are your thoughts on Gold and the USD?

  8. 8 Babak

    gold? take a look at this :)

  9. 9 Johan Lindén

    I think I wrote it above. If not, it’s psychology!

    Anyone who has read economics 101 knows that what decides the value of a business is the discounted cash flow together with the implicit market capitalization rate (what yield is demended) for that business.

    The later is value totally decided by psychology. When people are afraid they demand a higher yield (compared to the 1 month gov. bills) than when they are content. These are totally subjective values that nobody can count on explicitly. There’s only an implicit value which the market as a whole decides upon.

    The first part of the equation, the earnings or cash flow is also partly dependent on psychology. I.e. If people are afraid that luxury car isn’t that interesting any longer.

    It is strange that so few are aware of this economic 101 FACT. And I’m not talking about moms and pops, I’m talking about so called economists who don’t know jack!

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