The September Effect

Bears out for the indices this month?  It certainly seems to have started that way, with NASDAQ dropping 700 points yesterday, and DOW over 600 points.

The last four years have seen strong bear markets for the indices but bull markets for the US Dollar Index.  Since 1929, the S&P has, on average, seen a decline  in September - most of you know that September 1929 was the start of the great depression that lasted for ten years. Perhaps that's why we see history so often repeating itself for this month.

My chart data goes back to 2002, so I've done my own analysis to see what the chances are for this month being all doom-and-gloom.  I don't trade the S&P so have left it off, preferring to stick with the indices that I do like to trade.  Out of the 22 years of data, DAX fell on 12 Septembers, DOW on 11 of them and NASD on 12.  That puts the chances of a drop for the month at a little over 50%; but a 100% chance if we just look at the last four years.

With rare exception (2006, 2009, 2018 & 2019), the US Dollar index has risen when the NASD fell and dropped when the NASD climbed - not really a surprise.  We've enjoyed trading to the new all-time-highs (ATH) on the indices in the past couple of months and, as we've so often seen before, the ATHs eventually precede a big correction - profit-taking - before the next move for a new ATH begins.  We just need to identify the reversal zones to buy the dips, as the indices always go back up.

If history and yesterday is anything to go by, it looks like we could be in for another good bearish September on the indices - enjoy the ride.