Wednesday, September 2, 2009

September Is the Cruellest Month

For some unknown reason, September is traditionally the worst month for the stock market. People have proposed various theories, but none seems to be particularly satisfactory. In any case, now the September is upon us, let's have a look at what's been going on lately in the markets.

Gold has been in a trading range all summer. It's formed a symmetrical triangle formation, which suggests that gold should break out soon. Since symmetrical triangles are consolidation patterns, most likely gold will go up, though we can't rule out a sharp break to the downside either. September, interestingly, is the best month for gold, so we should expect something big from it soon. If it's like most past Septembers, it'll be a big move up.

Silver has been more active than gold, but it too has been more or less bounded since it last made a high at $16 back in June. We can expect it to follow it gold, though lately it has been matching movements in the stock market a lot. If gold is going to go higher soon, this should mean silver will go higher too.

Like gold and silver, oil hasn't moved that much all summer. It had a big run-up in the spring, but then refused to go higher than $75. Lately, oil has been attempting to breach $75 again, but I'm a little bearish on oil, at least in the short and medium term. Oil will go higher eventually, but right now, unless it can decisively take out $75, more likely we'll be looking at a correction.

The stock market has been on an endless climb upwards since March. I've been saying for a long while now that this can't continue forever, not with the horrible economic situation, but as John Maynard Keynes said, "The market can stay irrational longer than you can stay solvent." The worst offenders are the financial stocks. Most banks are not worth anywhere near what the market thinks they're worth; in fact, most of them are worth nothing more than $0. But when "investors" ignore reason, anything can happen. Stocks will keep on going up... until they stop going up. Then they'll crash as everyone realizes they've been had. September may prove to live up to its red legacy.

So that's what I see going on. Gold and silver will go up, oil will probably go down, and the stock market should go down but may continue to defy logic again. I don't purport to have a crystal ball, but all I can say is that reason and probability are on my side.

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