Swing Month

The stock trader's Almanac calls it the worst performing month of the year, but that is not always the case. During the late 1990s, September was great for stocks. The past couple of Septembers have also yielded positive returns.

The month corresponds with the peak of hurricane season, however. Though oil prices have pulled back from their record highs, any disruption to supplies could send crude prices gushing. Let's hope the damage from Gustav is minimal.


Regarding the current economic environment, the general expectation is that data will not be very good over the next several months. But, relative to other periods of weakness, the economy is in pretty decent shape. Hidden behind the headlines is the simple fact that unemployment remains at favorable levels. Plus, most homeowners are current on their mortgages.

On a technical basis, we are entering September in a low-volume trading range. Therefore the charts aren't telling us very much.
My best guess is that we will probably see more choppy markets in September and throughout the fall. Nonetheless, the U.S. markets appear to be the best game in town. Therefore, keep money allocated to U.S. stocks. Long-term investors will be rewarded for doing so.

The Markets
Since I've been talking about the late-summer trading environment during the past couple of weeks, I thought it might be more useful to show a chart of SPDRs (SPY), the ETF that tracks the S&P 500, rather than the index itself. Doing so will allow you to view the volume trends that I have been noticing.

Recent Additions to the Focus List
On Thursday, we added four stocks to the Focus List - the most we have added on a single day in quite some time.

There were two primary reasons for this. The first was that the current market environment has discounted companies with positive business momentum and rising earnings estimates. The second was that we saw the opportunity to improve the diversification of the Focus List.

The new additions are Edison International (EIX)- an electric utility, Kansas City Southern (KSU) - a railroad, Fluor (FLR) - a construction and engineering firm, and Metalico (MEA) - a scrap metal processor.

At 29 stocks, the portfolio is still a little smaller than I would prefer. My preference not to overweight basic materials and energy is keeping us out of several Zacks #1 Rank ("strong buy") and Zacks #2 Rank ("buy") stocks. There are others, like Visa (V), that we want to look at closer before making a final decision.

My intention is to use any additional market weakness as a buying opportunity. Of course, we will execute stop losses when necessary.
Priceline.com

We sold Priceline.com (PCLN), a stock that was added to the Focus List in Nov 2005. Our concern was that the weakening global economic environment has increased the downside risk for the stock. Given this scenario, we saw little reason not to lock in a nearly 300% return.

By: Charles Rotblut

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Charles Rotblut is the Vice President of Web Content for Zacks Investment Research and the Senior Market Analyst for Zacks.com. He oversees the editorial staff, manages the market-beating Focus List, Timely Buys and Top 10 portfolios, and plays an instrumental role in the development of new products. For more information, visit www.zacks.com