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Jon Markman's Speculations
Sept. 21, 2010, 12:01 a.m. EDT · Recommend · Post:
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The real driver of Thailand ETFs' rally
First Take "º
Dow Theorist believes buy signal is imminent
By Jon Markman
SEATTLE (MarketWatch) -- Stocks over the past three weeks have defied the conventional wisdom about the weakness of September and blazed a path higher. If there is one thing that Mr. Market loves to do, it's poke the pundits in the eye "” and he has done that with both hands this month.
Equities have pursued the upward path for the best of reasons, and to the bears the most enervating: Companies with irregular fiscal years have been reporting summer-quarter earnings that have mostly beat expectations -- plain and simple. And not small, goofy companies either. We're talking about retail and software giants Best Buy Co. Inc. /quotes/comstock/13*!bby/quotes/nls/bby (BBY 38.32, +1.17, +3.14%) ,Oracle Corp. /quotes/comstock/15*!orcl/quotes/nls/orcl (ORCL 27.49, +0.01, +0.04%) , and even the humbled one-time leader of the wireless handset world, Research in Motion Ltd. /quotes/comstock/15*!rimm/quotes/nls/rimm (RIMM 45.14, -1.58, -3.38%) .
The second half of September is the part that has given the month its bad reputation, so bulls are not out of the woods yet, so to speak. In fact, probabilities favor a lot more volatility ahead, including potentially a dip to the 1,060-1,080 area for the S&P 500 as shown in the chart above.
The recession that started in December 2007 ended in June of last year, according to the NBER, but weaknesses still abound for the U.S. economy. Sara Murray discusses. Also, Neal Boudette discusses the possibility that China's biggest automaker may seek a stake in General Motors, which is now preparing for a post-bankruptcy IPO.
But for the past 100 years, when the market has cruised above its 10-, 50- and 200-day averages by the middle of September of a mid-term election year it has strong tendency to keep speeding right into the end of the year and beyond.
Mid-term elections matter to market performance for two reasons: It's a time when a president can bend the government bureaucracy to the task of producing the best possible spin on economic data. And it is also when the out-of-favor party is energized by hopes that it can win back Congress and block the president's agenda.
When the market is already in a sour state coming into this period, the political anxieties fuel the despair on both sides. When the market is rising into this period, both sides begin to dream a little. We're in the latter case now, so if you look at political and financial commentary you will see both sides of the political spectrum claiming that they have their opponents just where they want them.
Getting down to the numbers, here's how it has worked out:
"” Looking at all mid-Septembers before mid-term elections since 1902, the broad market tends to rise over the next 10 weeks by 3.5%, with a 16 of 20 win/loss ratio. And the positive periods are 6.8%, vs. negatives (including 1930) at -9.8%.
"” Looking just at mid-Septembers of mid-term years when the market is above its 10-, 50- and 200-day averages, the win/loss ratio is 5 out of 6, with an average gain of 5.3% over just four weeks, and an average of 7% in the positive results and only -2.7% in the negatives. Some of the best were 1982, 1958, 1954 and 1950. (Data courtesy of Markethistory.com).
So get out your Reagan, Truman and Eisenhower memorabilia and let's hope the next few months run just like they did in the times of "?'Give "?Em Hell Harry,'' "I Like Ike" and "Morning in America." And just to belabor the point a little, you should know that the one losing month in the second case was 1994, and the rally just took a little longer getting going, because 1995 was a barn-burner.
Now as for the broader perspective, stocks are actually looking much better than most people think. If you asked the man or woman in the street whether the U.S. stock market was up or down this year, I think they would guess down.
But the reality is that larger American companies are now positive for the year, with the S&P 500 up almost 1%, while the small-caps are up 5% and midcaps are up 8.4%.
Moreover if you take out the big banks and energy stocks, which continue to squirm, the industrial companies in the United States, which are in the Industrial Select Sector SPDR /quotes/comstock/13*!xli/quotes/nls/xli (XLI 31.16, +0.46, +1.51%) ETF, are actually up 12%. Overseas the picture is even brighter, with emerging markets iShares MSCI Thailand /quotes/comstock/13*!thd/quotes/nls/thd (THD 57.70, +0.60, +1.05%) and iShares MSCI Chile /quotes/comstock/13*!ech/quotes/nls/ech (ECH 73.67, +0.87, +1.20%) up 37% and 34%, respectively, for all the reasons I have detailed in prior columns. Read about why Thailand's stock market is rallying.
A Dow Theory buy signal could be triggered as soon as the close of trading today, according to the interpretation of this particular follower of the Dow Theory, perhaps the oldest market timing system still in widespread use today.
1:24 p.m. Sept. 20, 2010 | Comments: 118
- Orvinfive | 4:24 a.m. Today4:24 a.m. Sept. 21, 2010
"Euro gains after successful Irish bond auction http://on.mktw.net/9Dgrje" 4:30 a.m. EDT, Sept. 21, 2010 from MarketWatch
"Europe's Stoxx Europe 600 index trades lower at the outset, off 0.1% http://on.mktw.net/b9pkRo" 2:06 a.m. EDT, Sept. 21, 2010 from MarketWatch
"Japan's Nikkei Stock Average opens up 0.8%; banks, auto shares rise http://on.mktw.net/a4b5Cm" 7:06 p.m. EDT, Sept. 20, 2010 from MarketWatch
"#Obama hits #China, tea party in town hall http://bit.ly/bzXmUU" 5:34 p.m. EDT, Sept. 20, 2010 from MarketWatch
"Stocks rally on NBER's end-of-recession call http://bit.ly/a3ljQw" 4:22 p.m. EDT, Sept. 20, 2010 from MarketWatch
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