September Seasonal

Most market followers know or at least have heard that September is the worst month of the year. It is the only one with a net negative return over the decades and when there is an October surprise (that means crash) the pain really started in September.

There is another little seasonal pattern this time of year but it is not nailed down to the calender. Well, actually it is - the lunar calendar, not the solar calendar we are all used to using. Before getting into it, let me digress a bit about the lunar calendar.

Chris Carolan, publisher of the Spiral Calendar advisory, wrote a 1998 Dow Award winning paper called "Autumn Panics" and as the c-word above suggests, it is about autumn stock market smashes. I am going from memory on this one but this time of year is the seventh month of the calendar and that is where a good deal of these panics occur. That means sometimes it is in September and sometimes it is in October.

Guess what month it is right now?

Let's be clear that not all month 7s are panics. In fact, most are not. But it is a delicious tidbit of technicals, isn't it?

Back to the topic of this post. While the September seasonal is not living up to its reputation thanks in no small way to Ben and Mario, the seasonal that does seem to be working so far is based on the Jewish Holidays. Sell Rosh Hashana and buy Yom Kippur. Or, in English for 2012, sell Friday Sept 21 close and buy Wednesday Sept 26 close (it may be Sept 27 open but that is not the point of this story - you are free to get the details elsewhere). The idea was that many investors square up positions to avoid distraction during prayer and after the holiday they return to work.

Check this chart from this morning's Quick Takes Pro newsletter.

This was printed before the open Monday but so far, so good with the seasonal trade. No, its not like buying Apple or shorting Facebook but a little reliable profit is an very underestimated luxury.