It's a known fact that Sept and October are typically weak times for US stocks.
Going back 37 years shows us the tendency for investors to sell and rebalance
their portfolios to try and perform better during the final quarter.
But that's not really the point of this article. The chart below shows a comparison
between the SP500 bullish percent index and the SP500 index.
What is a bullish percent index?
in short, it's based on point-and-figure charts and is one of the oldest and
simplest stock charting tools to help identify the overall market strength
or weakness. This index shows us how many stocks have generated a buy signal
within the group of stocks its tracks.
Bullish Percent Index Proves Market Is Weakening:
The chart below shows the bullish percent index at the top and the SP500 at
the bottom. I think the charts paint a clear picture of what is taking place.
Currently the BPI is trending lower and picking up speed, while the SP500 index
has been rising. This means fewer and fewer stocks are holding the stock market
up and this typically ends with a sharp market correction. The last time we
saw this was in June.
In fact, the drop in gold miners of 10% on Tuesday and the pullback in the
SP500 I talked about it happening the day prior in a conversation
with Kerry Lutz and also shared what we should expect next.
The Time of Year Stocks Correct:
Below is the seasonal chart of the SP500 taking into account all monthly price
movements over a 37 year period. September is usually weak which it close lower
for the month and so is October.
Concluding Thoughts:
In short, stocks are under pressure for the month of October. I expect increased
volatility, and large intraday price swings to be more of the norm.
