The Pattern Trader

THE LIFE OF A PROFESSIONAL TRADER. HIS MOTIVES, INSPIRATION AND VISION.

September Review, October Preview

Did someone say that September is the worst month of the year? I also heard that Q3 is the worst quarter.

Given yesterday’s close, the DOW would have to lose an improbable 250 points (2.6%) in today’s last trading session of September to finish lower.

This has been about the best Q3 the market has seen in recent history. What gives? Seven straight months to the upside for the NASDAQ … so will October be the 8th Candle Reversal that brings down the strongest of the three benchmarks?

October is notorious for starting recessions and is well remembered for its worst crashes. What is little known is that Octobers have been responsible for 11 recoveries since WWII. So what will the market be watching for this year – another crash or the kick-start of a real rally?

Truth of the matter is, I am confused. Fundamentally, the economy is still a mess and there is no reason for the market to be bullish. On the other hand, millions of people living in denial is hard to deny. Politicians who are masters at Tai-Chi are also hard to beat. A government that has perfected the art of pushing their liabilities to the next generation makes it difficult to read if current pain will equate to near term suffering.

The only thing that is sure and 99% confirmed is that inflation of all sorts in every permutation will be a worry very soon. This will open a whole new can of worms even before we gather the worms that spilled out of the last can.

I’m staying alert to all the possibilities and will refrain from getting too bullish and being too bearish. For once, I am going to sit on the fence.

October Market Trivia:

• October is notorious for birthing recessions.
• The first 15 trading days of October usually features lower than average volumes.
• When not starting a recession, October is a “bear killer” as it turns markets bullish.
• The last week of October is a great time to start buying.
• October usually starts well and closes better.
• The end of October starts the best six months on the S&P500 and Dow
• The end of October starts the best eight months on NASDAQ.

September Review

September has been merciful to me. It left me with the much needed time to trade and write and catch up with my friends. It was an eye opener and because of this revelation, I have decided that I am going to teach less in 2010 and focus more on trading and my family (not necessarily in that order).

The market was also rather generous and surprisingly low risk (if you were bullish). But that is what is making me unusually nervous. Nevertheless, I leave September 2009 behind with many good memories, just as I remember many other good Septembers in my youth and younger working days. It has always been a good month to me.

On Wednesday, 9 September 09, WAT graduated Batch 32. This must be one of the most “fun” batches I’ve had with energy levels not felt from such a mix of students for a long time. Thanks to the ladies from UOB Kay Hian for a great lunch and for having so much fun in class.

80+ investors emerged after another 4 day intensive Wealth Academy weekend to graduate as WA19. Adam and I both came to the conclusion that this was one of the most energetic batches especially considering the size of the class. It started out tragically short on Coaches but I don’t know how Kiat Haw manage to round up more troops to help make this one of the most memorable batches this year. Kudos to the man! and many thanks to the Coaches for making it happen!

The latest update on the Monthly Report for September focuses on the Financial sector. It isn’t because I love this sector that I did this report … rather, if it is a money maker, there is where I’ll be. You’ll see this weekend, how evil this sector is when I publish this weekend’s post. Stay tuned.

Get your copy now.

Property Update

No, not the U.S. but here on the Little Red Dot … it is still a hot topic but it would seem that the euphoria is fading. Why? Nothing else to buy or are buyers getting sensible?

(Click to enlarge)

Whatever the reason, the housing rush seems to have slowed considerably. It could be because all the “cheap” buys are gone and only the premium stuff remains. It also could be because of the withdrawal of the Interest Absorption Scheme (IAS) and the Interest-Only Housing Loans (IOL).

If this tells me anything, it screams very loudly that the ones with the real money aren’t interested even if they can afford the premium sites. Therefore, the bulk of this year’s sales, as I suspected all along, was made by those who don’t have the money who were wishing to make a quick flip on credit. And these were the people who were pushing up prices and inflating the bubble.

I smell medium term trouble in the property market. Flippers and new-home owners better pray that the release of new land and the tightening of credit doesn’t force the hand of the developers down. If and when these premium sites don’t move, they may just do that and that will domino the whole industry and put the initiative in the Buyers’ hands. And then the Double Top fulfills its prophecy. Sell it while it’s still profitable, I say.

Conclusion

This Friday is Non-Farm Payrolls day – in other words, “tighten your stops … be alert … don’t get into anything new for now”. The market is expecting a loss of another 180K jobs (down from 216K prior). However, current street expectations are looking at a further downside to job losses with estimates nearer to -225K.

Yup, anything worse than expected is going to make these charts look pretty by comparison. If that grey area gets bigger, the market will go lower … much, much lower.

Don’t forget that America goes into earnings season next week with Alcoa (AA) on Wed, 7 Oct (AMC). Q4’s earnings are going to be crucial for this market going forward. I don’t have a good feeling about it but I am hoping for the best. I like this rally, distressed or not, as it has been easy to make money. But goods things come to and end … I’d just like to know when that end is going to happen.

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