For the main stock markets that I cover, September has generally been a poor month. Take America's Dow Jones Industrial Average, for example. The Dow has gone up in only 42 per cent of Septembers since 1900, making it easily the least consistent month for the index. The average loss in the ninth month for this index is around 1 per cent.
The Dow's worst month
A similar losing pattern is evident for the UK stock market. Going back to 1935, the FTSE All-Share index - and its predecessor the FT 30 index - have tended to lose 0.75 per cent in September, with a roughly 50:50 chance of gains or losses. It's uglier still for Germany's DAX, whose average loss has been 2 per cent, with gains less than 40 per cent of the time.
Because equities in the US and Europe have rallied so strongly since their lows of early June, the chance of a pull-back occurring may be seen as much higher. As I discuss in the Trader column, there are some clear signs of complacency, particularly going by the state of the VIX index. But, while equities may experience a correction, I don't expect a major top.
Especially in recent years, copper has seemed to move closely with equity markets. So it is little surprise that copper has tended to have a hard time of it in September, when stocks have often suffered. The red metal has frequently ended the month in the red, with an average loss of 0.9 per cent, and gains in slightly fewer than four years out of 10. Given the messiness of the chart lately, I have been leaving copper alone and continue to await further clarity as of now.
By contrast, September has been a notably strong period for precious metals. Gold has gone up around two-thirds of the time, making it easily the yellow metal's most consistent money-making month. The average gain has been 2.2 per cent. Silver has also tended to gleam next month, with a 61 per cent chance of a gain and average returns of 3.4 per cent.
Lately, both metals have flourished, with silver giving a change-of-trend buy signal back in late July, and gold following suit just this week. Encouragingly, silver has been leading the way, something that bodes well for both it and gold. Both have suffered long-standing corrections since April 2011 and September 2011, respectively. I am forecasting major upside in each, but I am not sure that it has begun yet, nor whether it will start in September.
When it comes to exploiting these calendar trends, it is important to recall that seasonality alone is seldom a reason in itself to trade. My approach is to use these trends as a complimentary tool in my analysis. For example, I would have greater confidence in a swing-chart sell signal in the Dow occurring in early September, given the experience of history. Price action is king, while seasonality is merely a courtier.
