September Foreshadows Direction Of The Market

 |  Includes: KO, MSFT, NFLX, SPXU, SPY, T, UA, XOM
by: Mr. Massive

By now, you have read countless articles establishing September as the worst month for the stock market. So far, it has been true to its reputation, with major indexes nearly down 4% in the first 2 days. I'm sure you have also read different bullish and bearish accounts interpreting the macro environment and recent data. I would like to offer a new lens through which to view September. Removing the grip of fear, one can infer that September serves as a preview of the future.

Below is a table of the S & P 500 Index over the past three years on 9/1, 9/30, and then six months later, 3/1 of the next year.



Next 3/1

















Click to enlarge


The last three Septembers have accurately foreshadowed the direction of the market. In 2008, the S & P 500 slid 9.4% in September, and another 37.4% until March 1st. Conversely, in 2009, the S & P rose 3.7% in September, setting the stage for a 4.6% gain until 3/1. 2010 saw even better results. The market rallied 8.7% in September, and a solid 16.4% til March. Taking the scope further, September has accurately predicted the direction of the market eight out of the past ten years. Interestingly, September has seen gains in eight out of the past ten years.

Therefore, if the S and P 500 goes up in September, it is a good time to buy, as the rally should continue into the next year. Recommendations include Microsoft (NASDAQ:MSFT), Coca- Cola (NYSE:KO), AT&T (NYSE:T), and Exxon Mobil (NYSE:XOM). These multinationals all have healthy dividends, solid balance sheets, low P/E ratios, and demonstrate consistent growth. Depressed prices make a great entry point for phenomenal, well established dividends.

If the S & P 500 declines this September, it will be time to short the market. My favorites for this scenario are Under Armour (NYSE:UA), Netflix (NASDAQ:NFLX), and (NYSEARCA:SPXU). Under Armour and Netflix are both valued on future growth, not present earnings or book value. If the market tanks, and earnings follow, companies that fit this criterion will be hit harder. They also don't have pristine balance sheets, so a recession would be particularly hurtful. SPXU is a tool to triple short the market.

Regardless of your stance, it is always wise to be nimble and fluid. Using history can only be profitable, but calming in times of turbulence.

Disclosure: I am short SPY.