FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
FxPro information and reviews
HFM information and reviews

Look out bulls September is the worst month for returns

1 September 2021

With month-end behind us, we close out August with the S&P500 +2.9% - its 7th consecutive monthly gain and the 3rd with returns over 2%. This run of form perhaps overshadowed by the ASX200 which has closed higher for an 11th straight month. We head into September with an air of cautious optimism – no one would be shocked to see the start of a 5% to 10% pullback and everyone is asking the question, but few are positioned for it. One questions if the market could even talk itself into it.

Seasonality is one of those mystical forces people talk about from time to time. For me, it’s something to consider as part of a framework (but not in isolation), especially where in the past 15 years September is the worst month of any month for US stock market returns.

S&P 500 returns over 10 years

We can go back to the late 1920s and look at average returns per week and see that the second half of September has two of the three worst weeks (on average). With global data rolling over and the much-anticipated August US payrolls and September FOMC meeting coming up (23 Sept) – anything is possible and if seasonality is our guide, then it will pay to stay nimble. As always, be open-minded to direction, follow the tape and look for the signs that increase probability or a quick-fire drawdown.

Watch the S&P 500 for its influence on broad markets

Like many, I look at the S&P500 closely. Not always to trade the index, and at Pepperstone we tend to see more activity in the NAS100 and US30 than the US500 – But aside from being the world’s institutional equity benchmark, the S&P500 guides the Fed, and it is one of the main tools they watch to see if the market agrees with their policy mix. It's clear that the Fed will taper its asset purchase program later this year (my guess in November) and should the S&P500 crater they’ll tell us they plan to increase it again. If the market plods higher and the VIX stay sub-20% and credit spreads don’t widen, then they’ll soldier on – tapering isn’t tightening but it does increase the vulnerabilities.

Moves in the S&P 500 also matters because if equity volatility picks up then it will spill over into higher vol in the FX markets too.

The 50-day MA seems important – it has guided the market higher and been the ‘buy the dip’ level throughout 2021, and there is strong uptrend support here too – until this goes and vol spikes then the trend is one’s friend. In fact, the bullish development we saw on Friday was that price broke and close above the rising uptrend resistance. Granted, we’ve seen indecision on the day, in what was a messy tape, but the former trend has been confirmed as support. Breadth has been mixed, as one would imagine when the index closed -0.1% and cash volumes have been 13% above the 30-day average, so some clear month-end flow going through.

Assessing the warning signs

There is very little at this stage flashing code red – the recent trend since mid-August has been for consumer names to outperform staples. Small caps are outperforming large, higher beta stocks are working vs low volatility names and cyclical's are not giving any glaring reason to be concerned despite the US and global data flow coming in consistently below estimates.

Ratio analysis – warning signs

The NYSE put/call ratio sits at 0.66, which is in line with the 1-year average. 30-day implied volatility (VIX) in the S&P500 trades at 16.48%, near 52-week lows and 30-day realised volatility is eyeing new lows at 8.26% - why buy volatility when it's realising so low! Correlations are towards the 15th percentile of the 12-month range – great for active stock pickers.

We also see that after a positive trend through April to mid-August the CHF and JPY (trade-weighted) have rolled over a touch recently and there are reasons to own these unless there is a risk-off vibe.

All these factors tell me the same thing effectively. That being that the market is not positioned for a 5% correction to come anytime soon. Investors want to be in equity, but they head into quality (cash flow, solid balance sheets and high ROE).


Share: Tweet this or Share on Facebook


Gold traders appear hesitant
Gold traders appear hesitant

Gold finally broke out of the consolidation after being range bound for nearly 11 days. The correction to the downside was expected as gold traded in the overbought territory...

3 Feb 2023

Do safe haven currencies still exist?
Do safe haven currencies still exist?

At the end of last year, Swiss National Bank (SNB) President Thomas Jordan told news media that both the Swiss franc and the US dollar could be considered safe havens...

3 Feb 2023

USD Index appears bid and approaches 102.00 ahead of Payrolls
USD Index appears bid and approaches 102.00 ahead of Payrolls

The index looks to extend the post-ECB rebound. January Nonfarm Payrolls will take centre stage later. Other key data includes the ISM Non-Manufacturing...

3 Feb 2023

USD Index appears depressed post-Fed, breaches 101.00
USD Index appears depressed post-Fed, breaches 101.00

The index drops to 10-month lows near 100.80. The dollar remains on the defensive post-FOMC event. Initial Claims, Factory Orders next of note in the docket...

2 Feb 2023

Can The GER40 Keep Its Strength?
Can The GER40 Keep Its Strength?

As attention turns to the approaching Fed and ECB announcements, the GER40 index maintains stability near its best level since September last year...

2 Feb 2023

XAG/USD consolidates around 200-hour SMA, just above mid-$23.00s
XAG/USD consolidates around 200-hour SMA, just above mid-$23.00s

Silver stalls the overnight recovery move near the $23.70-80 support breakpoint. The technical setup warrants some caution before placing fresh directional bets...

1 Feb 2023

Editors' Picks

FXCM information and reviews
ActivTrades information and reviews
RoboForex information and reviews
MultiBank Group information and reviews
MultiBank Group
Libertex information and reviews
Vantage information and reviews

© 2006-2023 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.