September Socks Investors Before They've Even Had a Chance to Turn the Calendar
Was the month's infamous seasonality on brutal display the first day a self-fulfilling prophecy?
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The trading on the first day of the worst month of the year was brutal. It is well known that negative seasonality tends to be a problem in September, but it typically doesn’t hit so fast or so hard. According to Bespoke, it was the worst first day of a new month since May 2020.
The indexes were slammed, with the Nasdaq losing 3.25%, the S&P 500 down 2.0%, and the Russell 2000 dropping 3.0%. Breadth was around four to one negative, and new 12-month lows rose to over 225 names.
What was most notable about the action aside from the ugly selling was that there wasn’t any obvious news catalyst. Stocks were marked up sharply at the close on Friday, and there was quite a celebration about the DJIA making new highs. There wasn’t any significant news flow over the long weekend, but market players were in a grim mood and rushed to dump Nvidia NVDA, which, until its earnings last week, had been celebrated as one of the greatest stocks ever.
Technology stocks bore the brunt of the damage Tuesday, but there were few places to hide. While some consumer stocks such as Procter & Gamble PG and PepsiCo PEP attracted investors looking for a safe haven, industrials, energy, semiconductors, biotechnology, and the Magnificent Seven were pounded.
The poor action was likely due in part to investors trying to position in front of the well-known negative seasonality. Seasonality often occurs simply because so many traders believe that it will. It becomes self-fulfilling and builds as it becomes worse. What was different this time was that there wasn’t any data to use as a justification for the action.
The problem now is that there is some technical damage and negative momentum. There isn’t any great reason to try to bottom fish right away because there won’t be any significant news until Friday, when the August jobs news is released.
The good news about this action is that it will make it less likely that we will have a "sell the news" reaction when the Fed does cut rates on September 18.
My game plan is to sharpen up my shopping list and to start looking for support levels for small buys. There are lots of names I want to buy, but I’m more focused on buying uptrends than trying to catch a low.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark was long NVDA.
