September: Worst Month Statistically For Markets

Written by Stock Option Coach

On September 4, 2017

Market Overview

Last week was a great week to be long, as all 3 major indexes made gains each day of the week, with the exception of the Dow Jones which needed to rest Monday before joining the S&P & Nasdaq in considerable gains for the week. The Dow was able to pick up .80% gain for the week, the S&P gaining 1.3% and the Nasdaq making up the most ground with 2.4% for the week. As we stated last week, the odds favored the market beginning its next up leg, and we saw just that with green across the board for a vast majority of indexes & stocks. The Dow made a textbook reversal on Tuesday as it found support at the 50 dma and finished each day of the week with more reversal bars, which is always a positive sign for the overall strength of the market. Currently, the Nasdaq & SP-500 are both bumping into overhead supply that may slow or stop last weeks advance. In addition, September is the worst month of the year statistically; this isn’t a month to be greedy, but instead, capture your profits and make sure to use a tight stop. Look for lots of volatility with shorter runs of a few days.

Long-Term Herd The LTH is overbought after seeing the market make considerable gains last week. Wait for setups to form and price to come back in the buy zone before jumping in with both feet.

Short-Term Herd: The STH proved correct last week as the market found higher and higher prices each day. Market is overbought as we enter Tuesday as odds favor lower prices to start the week.

Bull Market Status: The bull is still strong. No early sign of a looming bear market or correction anytime soon.

Stocks & Trade Ideas

Tech Sector – XLK found higher prices last week as the odds favored as it gained 2.6% from Tuesday’s reversal. It may need a few days to pick up steam again
Facebook – FB held true to the odds we outlined last week and found higher prices each last week for a weekly gain of 3%. No longer in the buy zone, but won’t need long before finding more buying. Keep on watch list for later this week.
Alphabet Inc. (GOOGL) found support at the low of 8/21 and launched up last week with 3 consecutive reversal bars before finally cooling off on Friday to close at approx $951. It finished the week resting right on the 50 dma, odds favor higher this week, but could see profit taking to start out.
Alibaba – BABA ended its 4 day skid on Tuesday as it reversed and bounced along the 10 dma the rest of the week. This continues to prove to be a strong stock, don’t let a rocky start on Tuesday deter you from jumping on a buy signal later in the week.
Amazon – AMZN is up 38 pts or 4% from Tuesday’s reversal. Odds favor sideways for the early part of this week.
Tesla – Tsla found higher prices last week as the odds favored as it gained 2.6% from Tuesday’s reversal. It may need a few days to pick up steam again.
Powershares QQQ Trust – QQQ launched up last week from our buy zone signal for a gain of 3.4% from Tuesday’s low. Odds favor some profit taking and sideways action this week.
Netflix – NFLX broke up out of its downtrend and consolidation this past week for a gain of 6%. Odds favor sideways for the short term this week.
Microsoft – MSFT also found higher prices this week as we anticipated in last week’s newsletter. It found major support at its 50 dma on Tuesday and went on to gain 2.3% for the rest of the week. Odds favor sideways to down on Tuesday.

Trading Psychology

The Number One Goal-Setting Mistake Traders Make in Trading

The number one goal-setting mistake traders make is setting goals related to money. Active traders will often tell me that they have a goal of making X-dollars a day or X-points a day. That’s just not a good way to structure a goal.

Trading Goals Related to Money

What happens when the market trades in a very narrow range? Typically, price movement will remain within the first hour’s range throughout the day. That range might only be 5 or 6 points — too narrow to offer much trading opportunity. It is very difficult to make money on such narrow range days.

So, if you goal was to make X dollars a day how do you do that on a narrow range day? Since it is nearly impossible to make good trades on such a day, you would have failed to achieve your goal. And, if you couldn’t read that the market has narrowed its range and instead tried to reach your money goal, you would have likely been trying to trade at every little turn and wound up over trading a choppy, range-bound day. At best your money goal had set you up for failure because you couldn’t achieve it. Worse, your money goal caused you to force trades in a choppy market, and maybe you lost money. Goals that promote failure, poor trading habits, and losses are not useful goals.

A Better Trading Goal

A better goal focuses on your development as a trader. It will help you improve your trading knowledge, skills, or abilities. Rather than thinking about money, think instead about the process of trading. The process of trading simply refers to the skillful actions a trader takes in trading effectively. A useful question to ask is:

What trading process, if I were to improve and develop in this area, would add to my ability as a trader?

Example of a Better Trading Goal

An example will help to illustrate how to do this. Let’s say you want to improve your ability in trading trends. You have done a self-assessment of your trading on trending days and find that your greatest limitation is that you tend to counter trade the trend. A simple solution might be to notice whether the market is moving with momentum and making higher lows and higher highs (for a bullish trend). A useful process goal then becomes:

Prior to taking a trade that fades a move, I will assess whether the market is moving with momentum and making higher highs and higher lows. If it is trending, I will not take the trade. I will execute this process on at least 85% of all trades considered over the next 20 trading days. 

Note that this goal is useful because it builds skills and ability in assessing market movement. It also keeps the trader from taking poor quality trades. The next step for this trader would be to develop a goal to execute trades consistent with the trend – again, a process goal.

Trading goals should be designed to help you achieve. Goals related to money, points, or other ‘stats’ won’t help you do that. Work on trading goals that are related to achievement by helping you to develop your trading skills.

Source: Dayton, Gary. “Trading Psychology – The Number One Goal-Setting Mistake Traders Make in Trading”. Ezine Articles. September 16, 2010. September 4, 2017.

Good luck this week. Don’t force trades, take what the market will give you. As always, don’t forget to use a stop loss!



Randall Hudgens
(805) 837-9211

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