The Ghost Of September?
As I parked my car in front my house
last evening, I couldn’t help but notice some of the neighborhood kids sitting in
a yard across the street.
It was getting late, the sun was
setting and the clock in their minds was ticking away. Summer, as these kids knew
it, would be over in a matter of minutes. Usually at that time I could hear them
still playing, trying to throw a football in the dark or just chasing one another
around the yard. But it was over. First day of school today.
Like you, I can remember those days.
The night before the first day of school — sad, but exciting.
And like those neighborhood kids, the
seasonally strong summer months for the stock market are now officially over.
But wait! What’s that I hear? Yet
another talking head on the financial tube talking about how things will now
pick up in the market because the big boys and girls are back from their
vacations.
How’s that? You mean to tell me now
that the supposed “A” team is back in town, all will be right with the world? Is this possible or just a link in the market’s hope-fear-greed cycle?
Are those who are long stocks hoping the “A” team will swing in and drive
their stocks higher on the kind of volume so many are lacking and so desperately
need?
Unfortunately, history paints a
different picture.
Since the 1900s, using the Dow Jones
Industrial Average as our proxy, the dual July-August period ranks only second
to the December-January period as the strongest back-to-back months in the
market. And September? The worst month on record. In fact, September is
the only month down on average, up in only 42% of the years since the turn of
the century.
Now this has absolutely no basis in my
own intermediate-term trading. Just thought I’d set the facts straight before
anyone got too excited about some false market lore suggesting that the market
gets better just after Labor Day.
As usual, we’ll let the market tell
its own story — day by day. From that perspective, the market continues to act
fairly healthy.
Specifically, the Nasdaq Composite —
the index of choice for those searching for the most aggressive growth
stocks — followed through on strong volume Thursday. In fact, Thursday’s volume
on the Naz was heavier than the day it bottomed following its recent corrective
pullback on August 3. Heavy volume into an advance is a healthy sign in a
developing trend.
But while the market’s action through
Friday continued in healthy fashion, latching onto stocks with all of the right
characteristics hasn’t been a cakewalk. The quick rotation from group to group
over the past six weeks has made it even more difficult. Most names in today’s
leading groups continue to lack the sort of technical and fundamental
characteristics one would expect to see in a leading stock. However, as
discussed in my last column, if one was to forgo the leading groups and dig
beneath the surface, some leading stocks have recently risen to the top of setup
ranges, i.e., completing base formations.
BEA Systems
(
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PowerRating), Mercury
Interactive
(
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PowerRating), Network Appliance
(
NTAP |
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PowerRating), PMC Sierra
(
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PowerRating),
TranSwitch
(
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PowerRating), and now Siebel Systems
(
SEBL |
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PowerRating), appear to be
completing sound basing structures. All of which have the kind of earnings and
revenue growth that go into leading stocks.
Nortel Networks
(
NT |
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PowerRating) is another
leader setting up. It’s an important member of the ongoing
Internet-infrastructure-build-out theme.
With solid earnings and revenue growth
of the past three quarters, not to mention a five-year growth rate in earnings
of 27% (solid for a very large-cap stock — market cap equals 245.5 billion),
Nortel is currently resting near a two-week breakout point of its six-week base.
This base is on top of the 14-week double-bottom base it broke out from in early
July.
And while the names above possibly
prep for a move to new highs, Millennium Pharmaceutical
(
MLNM |
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PowerRating), in the
resurgent Biotech group, popped through the 10-week trading range of a 28-week
base formation Thursday and Friday, on heavy volume.
Regardless of the hopes and dreams
from the folks who try to call the market, or what history has foretold of
Septembers past, the market itself tells the only story — and as it unfolds.
And if you want to keep yourself from
being the subject of a cover story of good intentions that went bad in search of
the American Dream — HONOR THY STOPS!