The 'Helicopter
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
 | |  | |  | |  |
Will September be
the Cruelest Month
for Stocks?
Daryl Montgomery
08/31/2010
the Cruelest Month
for Stocks?
Daryl Montgomery
08/31/2010
U.S. stocks are set to close out August with the Dow Industrials dropping more than 4%
on the month. If the economic numbers continue to indicate a possible double-dip
recession however, stocks are likely to fall by a much greater amount in September.
Historically, it isn't crash-prone October when U.S. stocks have their worse performance,
but September. Stocks are entering the month in a technically weakened state that
began earlier in the summer. In July, all four major indices - the Dow Industrials, the S&P
500, the Nasdaq and the Russell 2000 - began a bear market trading pattern when
their 50-day moving averages fell below their 200-day moving averages (sometimes
referred to hyperbolically as a death cross). This is not enough to confirm a bear market
however. The 200-day moving average needs to also start moving down. This has
happened on the Dow Industrials and the S&P 500 in the last few trading days. The
200-days on the Nasdaq and the Russell 2000 have been moving sideways for a week
or more and should start dropping soon. The Dow Transportation Average also needs to
have a 50-day 200-day cross to confirm the negative action on the Industrials. As long
as there isn't a massive rally, this will happen today. So stocks will be entering
September in a technically vulnerable condition.
If more negative economic reports that indicate the economy continues to deteriorate
then take place, the mix could be combustible. More hints of a double-dip recession
from jobs or manufacturing would be especially damaging. Housing numbers this fall
probably won't affect the market as much because things simply can't get any worse
(with the exception of housing prices, which still have a lot of room to drop). The bad
news on housing from the summer - numbers worse than those at the bottom of the
Credit Crisis - may have a delayed impact on stocks though. Jobs have been the
perennial weak spot of the attempted recovery and numbers have continually been
at recession levels for over two years. Worsening unemployment figures would not be
viewed kindly by stock traders. Falling manufacturing numbers won't be either since
manufacturing led the economy up from its bottom in the fourth quarter of 2008.
U.S. stocks may also be following Japanese stocks down. The Nikkei dropped 325 points
or 3.55% in its last day of August trade. It is now at 8824 and could easily test its Credit
Crisis bottom, which is around 2000 points lower. U.S. investors need to watch the key
10,000 level on the Dow Industrials and 1000 on the S&P 500. Stocks moving and
staying below these key points would damage sentiment severely. The only thing left
at that point to hold up the market would be the Fed's liquidity injections. These might
work until the election on November 2nd. If so, you may not want to own stocks later
that week.
Daryl Montgomery
Daryl Montgomery
on the month. If the economic numbers continue to indicate a possible double-dip
recession however, stocks are likely to fall by a much greater amount in September.
Historically, it isn't crash-prone October when U.S. stocks have their worse performance,
but September. Stocks are entering the month in a technically weakened state that
began earlier in the summer. In July, all four major indices - the Dow Industrials, the S&P
500, the Nasdaq and the Russell 2000 - began a bear market trading pattern when
their 50-day moving averages fell below their 200-day moving averages (sometimes
referred to hyperbolically as a death cross). This is not enough to confirm a bear market
however. The 200-day moving average needs to also start moving down. This has
happened on the Dow Industrials and the S&P 500 in the last few trading days. The
200-days on the Nasdaq and the Russell 2000 have been moving sideways for a week
or more and should start dropping soon. The Dow Transportation Average also needs to
have a 50-day 200-day cross to confirm the negative action on the Industrials. As long
as there isn't a massive rally, this will happen today. So stocks will be entering
September in a technically vulnerable condition.
If more negative economic reports that indicate the economy continues to deteriorate
then take place, the mix could be combustible. More hints of a double-dip recession
from jobs or manufacturing would be especially damaging. Housing numbers this fall
probably won't affect the market as much because things simply can't get any worse
(with the exception of housing prices, which still have a lot of room to drop). The bad
news on housing from the summer - numbers worse than those at the bottom of the
Credit Crisis - may have a delayed impact on stocks though. Jobs have been the
perennial weak spot of the attempted recovery and numbers have continually been
at recession levels for over two years. Worsening unemployment figures would not be
viewed kindly by stock traders. Falling manufacturing numbers won't be either since
manufacturing led the economy up from its bottom in the fourth quarter of 2008.
U.S. stocks may also be following Japanese stocks down. The Nikkei dropped 325 points
or 3.55% in its last day of August trade. It is now at 8824 and could easily test its Credit
Crisis bottom, which is around 2000 points lower. U.S. investors need to watch the key
10,000 level on the Dow Industrials and 1000 on the S&P 500. Stocks moving and
staying below these key points would damage sentiment severely. The only thing left
at that point to hold up the market would be the Fed's liquidity injections. These might
work until the election on November 2nd. If so, you may not want to own stocks later
that week.
Daryl Montgomery
Daryl Montgomery
Real e Finance
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