Traditionally, stocks do not fare well in the month of September. So much in fact that The Stock Trader’s Almanac turned this trading reality into a cute little poem:
“September is when leaves and stocks tend to fall;
on Wall Street, it’s the worst month of all…”
Of course, this poem really only applies if you are a traditional stock trader. Thankfully, as options traders we have lots of choices--we can play the upside, downside and even go sideways. And for spread traders? Well, let's just swap out the word “worst” for “BEST.”
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day of August.
• The first nine trading days of August, especially the first one, is usually weak.
Key Dates:
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options
Market Outlook
Over the last seven months, investors have withdrawn over $33 billion in stock mutual funds moving their nest eggs to safer investments such as U.S. Treasuries and other bonds. With the exception of 2008’s meltdown, investors are now on a course to withdraw more in 2010 than any other year since the 1980s--as that trend continues we'll keep seeing bonds rise--and stocks plunge.
Speaking at an economic conference last Friday, Fed chairman Mr. Ben Bernanke left the crowd with a mixed message. He acknowledged that we’re in a fragile economy but tried to appear optimistic about future growth despite the fact that the government just reported the weakest quarterly growth in over a year--1.6%--with unemployment still at a very high 9.5%.
Bernanke's colleagues warned that keeping interest rates unnaturally low was a “dangerous gamble” that could create new bubbles, high inflation or both. But Mr. Bernanke concluded by saying that the Fed was prepared to make a major investment in government debt or mortgage securities if the economy worsened or if there were signs of deflation on the horizon.
Following Mr. Bernanke's comments, stocks posted big gains on Friday as investors began fleeing Treasuries and moving back into the stock market. Trader's were breathing a sigh of relief that the Fed was ready to step in should the economy show signs of weakening and also encouraged that the revised quarterly growth of 1.6% wasn’t as bad as most economists feared.
The question is--How long can vague assurances by the Fed be expected to buoy the markets? Especially when the Federal Funds rate is already about as low as it can go.
From a technical analysis perspective, there are an ever increasing number of stocks that are now falling below their institutional 200-day moving averages and many more hitting new 52-week lows. As technical indicators continue to deteriorate, institutional traders that key off of these signals will keep pressuring stocks lower. With all the gauges flashing red, does anyone really need the house to cave in around their ears before they get concerned?
Even with the Fed’s strategies, there are no guarantees. The bar for what is good news seems to keep moving lower every day. Even with interest rates already near zero, the Fed has not yet been able to resuscitate an ailing economy. The benefits of the federal stimulus program--if any--are fading and Congress is hesitant to pass any new economic aid while heading into the mid-term elections.
Mr. Bernanke is under intense pressure to 'do something' but there are no easy or quick options for reviving the economy.
Fortunately for us, we do have a few “easy options’ for reviving our own economies...like the three great trades we've got lined up this week.
What are the Secrets of the Week?
We've got two high odds Bear Call Spreads this week: one on a company that ran up over the past month hitting hard resistance and then bouncing lower; and another on a company that rallied to a short-term high in mid-August and is now positioned to plummet. So let's saddle up and ride these bad boys to the downside.
And for our third play we've got an ETF that is busy going nowhere--a perfect candidate for a high-odds Iron Condor. Let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
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