Intriguing Eruditions: The weak month of the stock market

“We can confirm BofAML’s point by looking at the analysis of each month of September going back to 1960 as shown in the chart below.”

“As shown, the average return for all months of September is -.70% with a median return of -.42%. More importantly, the statistics for September are universally negative. The number of losing months outweighs winning months by 31 to 25 which gives September a 55% chance of being negative historically speaking. While the “average and median” losses are less than 1%, this analysis obscures the fact that many September months registered losses of greater than 3%.”

This past week has failed to break the current consolidation process that started over a month ago. As shown in the chart below, however, the “bulls” are currently facing a very important test.

S&P 500 Large Cap Index

The GREEN dots at the bottom denote when the market is oversold AND on a momentum buy signal. The combination of these factors has subsequently led to a rise in the markets. However, the RED dots denoted when the markets were on a momentum sell signal and oversold. This combination of factors has generally led to further declines.

S&P 500 Large Cap Index

Click to enlarge.

The problem for individual investors is the “trap” currently being laid between the appearance of strong market dynamics against the backdrop of weak economic and market fundamentals. There will be a collision between the fantasy of asset prices and the reality of the underlying fundamentals. This will particularly be the case if the much-anticipated rebound of economic growth and earnings fails to materialize as has been suggested by recent economic reports.  

“The S&P 500 is on a rare streak of closes near a 52-week high; can this bull run continue or will gravity take over?

The recent, and ongoing, historically tight range in the stock market has been well documented. Over a month ago, we mentioned that the S&P 500 traded in its smallest 2-week range in history. A month later, the index has incredibly barely seen an expansion of that range. One aspect of this recent action that we detected, however, may be even more astonishing. It deals with the S&P 500′s streak of closing near a 52-week high. Specifically, every close since July 8 has been within 1% of a 52-week high. That streak of 39 days is the 2nd longest in the past 50 years.”

“How long will the current streak last? It’s impossible to say. Only 3 have ever lasted longer, with just 1 of them going past 48 days. What will happen to stocks once the streak ends? Obviously, that is impossible to know as well. However, the general pattern has been for the streak to end somewhat violently on the first day, then recover in the weeks following.

Time will tell how long this bull can levitate – and how far its riders will get tossed once it succumbs to gravity.”

With longer-term combined sell signals currently in place, and the market still processing a broadening topping pattern, the extremely high levels of “complacency” are likely misplaced.

But then again…I worry a lot.

Here is what I will be reading this weekend.