by Jason Bodner
September 13, 2022
September, historically speaking, can be chaotic and spooky. September comes from the Roman word “septum.” which means seven, because September was the 7th month of the Roman calendar. It didn’t become the 9th month until the adoption of the Gregorian calendar. We all know weird stuff happens in a full moon, and September hosts the Harvest Moon – the fullest full moon of the year.
Romans also believed September was ruled by the God of Fire, so the Romans always expected fires and volcanic eruptions in September. Maybe the Romans were really thinking about stock markets. That’s because, as I’ve said before, September is typically a volatile month for stocks. Revisiting the average monthly return since 1990, we can see that both August and September have been back-to-back bummers.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Both these months are also weak in midterm election years, such as this year…
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So far this year, August was dismal, and September has been bumpy so far, as the S&P 500 has already exhibited a 4.5% range between high and low since September 1, so September remains volatile.
Of the 10 trading days since August 26, six have been negative for the S&P 500 tracking ETF (SPY). As groan worthy as it is to see a bunch of down days in a row, there are actually some encouraging signs in that span. Let’s go through some of those now, as well as some other markers in the market of late.
Let’s start with the Big Money Index (BMI). As a reminder, this index is created by taking all buy and sell signals on a 25-day moving average and plotting them on a graph. Currently the BMI reads 59.7%. That level fell from an August 18 high of 83%. Whenever the BMI drops below 75%, historically this means that volatile markets are likely just ahead. Once again, history has repeated itself in late August.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What is encouraging however, is that despite the new wave of market pressure, the recent selling seems to be exhausting itself. Let’s look at that in a chart of all stock buying and selling. Below we see plotted against SPY all stock buys and sells on individual days. You can see clearly that there was a big pop in buying in August, followed by a swift wave of selling in the early days of September.
What I want you to notice is that the SPY (S&P 500 ETF) bounced off a key support level of $390. The prior two times that the SPY hit or fell below that level can be seen below:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
First, look at the month of May, when market pressure was caused by leverage unwinding. Brokers called in margin calls. Forced selling cascaded and markets collapsed. But the individual level of selling was well north of 400 for several days in May.
Then June rolled around and the market slipped into despair. All stocks were under pressure and selling levels eclipsed 500 some days but on average we’re closer to 300. As severe as it seemed, the data indicates that the intensity of selling was lower in June than in May.
That brings us to the early September selling, which you can clearly see is close to a daily number of 100. This indicates to me that the selling is exhausting itself. This pattern becomes even more clear when we look at the level of ETF trading. Looking below, you can see heavy selling in May, while June’s selling, while intense, was not as notable as April and May.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now look at September selling. It’s barely noticeable. There was some slight ETF buying in August and the level of selling we’ve seen recently looks very minor compared to the opening six months.
Now let’s take a look at the sector level. Let’s start by looking at the strongest sectors of late. Energy has seen fresh buying, even as the price of oil is in a downtrend. This is likely because the best earnings are there. Discretionary stocks saw very little selling, as did the industrials, healthcare and financials:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In the middle of the pack, real estate and technology saw some selling but nothing really serious. As you can see in the charts below, they didn’t even come close to approaching sell levels in May or June:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
To isolate where the selling has been, we can see it clearly in communications, materials and staples.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This is encouraging because technology and discretionary stocks bore the brunt of the selling from last November through to the early summer, so if fears were rippling that the bear market would intensify, I would expect to see selling accelerate in these growth-oriented sectors. That’s not the case now. Instead, I see profit taking and some consolidation from an oversold market as of July 14th.
To me, the playbook is working out as expected: We are entering a volatile September. History shows this is usually the case. But using history as a guide, we have much to look forward to in the fourth quarter, three particularly strong months of the year. This is especially so in a midterm election year, like now.
The Romans thought the gods of fire came in September. The first few days of this month certainly felt that way, if you were looking at your investment portfolio. But when we step back and look at the data, we’re seeing September action that is as regular as a harvest moon, just like Neil Young said in Harvest Moon: “We could dream this night away. But there’s a full moon risin’, Let’s go dancin’ in the light.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Why Energy Stocks Are Still a Strong Investment Sector
Income Mail by Bryan Perry
Investors Are Stuck in the Middle of Hope and Despair
Growth Mail by Gary Alexander
The U.S. Was Born in Debt, But Healed by Gold
Global Mail by Ivan Martchev
This Week’s Inflation Numbers Won’t Likely “Save” the Market
Sector Spotlight by Jason Bodner
September is Risky, But Then Come Fourth-Quarter Rewards
View Full Archive
Read Past Issues Here
Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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