ART CASHIN: Beware Of September 22 After Market All-Time Highs

Last Friday the Dow hit a new all-time high and the Alibaba — the biggest IPO of all time — finished 38% up on its first day of trading.

There’s been a lot of “all-time high” news recently. But investors are probably starting to get nervous.

Veteran trader Art Cashin, the director of floor operations for UBS Financial Services at the NYSE, sent out a cautionary note about a historical trend in market reversals.
Specifically, that markets tend to crash on September 22 after all-time highs.

His note contained an article originally written in 2009 by Barron’s editor Randall Forsyth, who cites work by Paul Macrae Montgomery.

Forsyth writes about “the day most likely to see a reversal than any other day of the year — September 22.” He cites several September 22 peaks — including the Dow Jones in 1929, and gold and oil in 1980 — when investors saw “all-time highs.”

Soon after these markets crashed.

Here’s the complete note:

Montgomery recalls living through the October “massacres” of 1978 and 1979, the crash of 1987, the mini-crash of 1989, the 1997 Asian collapse and the Long-Term Capital Markets plunges, which started to cascade downward in late September. And while gold bullion topped in January 1980, gold stocks made their highs on Sept. 22 of that year, he adds. That date also saw the peak in many oil stocks.

Looking back farther, on Sept. 22, 1929, the Dow Jones Utility Index became the final major average to make its high before the Great Crash. And in 1873, a panic forced the New York Stock Exchange to shut down, Montgomery further details.

And who can forget 2008, when markets went into free fall in the days following the collapse of Lehman Brothers? What’s remembered less well now is the market chaos in the subsequent days after the House of Representatives initially rejected legislation that created the Trouble Asset Relief Program

Currencies have seen historic changes around this date as well, he adds. The British pound was taken off the gold standard and was devalued a huge 28% on September 21, 1931. Exactly 54 years later, the Group of Five produced the Plaza Accord, which brought a sharp decline in the dollar and expansion of global liquidity. Black Wednesday, when Britain was forced to withdraw from the European Exchange Rate Mechanism, came a few days early on Sept. 16, 1992.

I also recollect that Treasury note and bond yields made their historic highs in late September, 1981, with shorter maturities hitting 17% and long bonds reaching 15%. That marked the end of a 35-year bear bond market from the end of World War II.

“If that’s not enough, several of the astrological types claim their charts show [this] week is fertile ground for surprises — geo-political and otherwise,” Cashin said. “Crazy? Maybe, but forewarned is forearmed.”

US futures are in the red ahead of the US trading session. Dow futures are down by 35 points.

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