Stocks To Trade In September

Cycles are of two types, static and dynamic. A static cycle is a rhythm that remains relatively unchanged, such as the tendency for the broad averages to rally in the spring, correct in the autumn and to rally in the last quarter. This approach can be applied to individual stocks. Below, we see the annual histogram for IBM. The bars represent the expected return from 1980. We see that July has been a strong month. The stock has risen 65% of the time for an average 3.0% gain, an expected return of about 1.95%.

Chart 1

The annual cycle is not the only cycle that is operative. In order to determine what other cycles might be operative, a scan is run determining the IBM weekly cycle which we see below.

Chart 2

Both the annual and the dynamic cycles rose last month. In July, IBM led all Dow stocks by rising 9.01%. The Dow average was about unchanged in that time period. If IBM rises 65% of the time in July, this percentage must rise when the dynamic cycle supports the annual monthly cycle.

For the month of July, this concept was tested. First, the Dow Jones 30 stocks were ranked from the best performer to the worst by calculating the percent of Julys in which the stock rose in that month. The top 15 were screened in the following manner. If the weekly cycle pointed up in July, the stock was considered a buy. In order to qualify, the weekly cycle had to rise for at least 21 days in the month. The traditionally weakest stocks in the month of July were screened in order to determine if the weekly cycles fell in the month; the same 21-day rule applied.

Eight stocks met the bullish requirement and all rose in the month for an average gain of 3.23%, ranging from 9.01% for IBM on the high side to 1.21% for Cisco on the low side. Of the bottom 15 stocks on the downside, seven stocks qualified. Six of seven declined for an average loss of 4.38%. The stocks ranged from -11.7% on the downside for Pfizer to a gain of 1.02% for JP Morgan.

This approach is applied to September. The seasonal screen for the month is presented below.

Of the top 15, these stocks show rising weekly dynamic cycles for at least 21 days in September and are considered buys for the month:

Cisco

Boeing

JP Morgan

MMM

Travelers

Regarding the bottom 15 of the September performers, these stocks show declining weekly cycles and are suitable short sales:

Disney

Goldman Sachs

Intel

General Electric

Coca Cola

Home Depot

Honeywell

Apple

I add that the monthly cycle for the index does rise in September, so the longs are favored in such a scenario.