Friday, August 23, 2013

7 reasons for a September crash

Think last week's 2% decline in stocks was annoying? Get ready for worse.

The reason: September is historically the cruelest month in the stock market. Several potential shockers and market dynamics are aligned to suggest that this year will be no different.

"Late August through roughly the end of September is going to be a difficult period," predicts Fred Dickson, a veteran market commentator whom I've watched make many good market calls in his role as a strategist at Davidson, a brokerage.

"We have a convergence of perfect-storm factors," says Dickson. They include the age of the current bull market, investor complacency, signs of consumer weakening  an imminent change in Federal Reserve strategies, unrest in the Middle East and budget bickering in Washington.

Dickson predicts that major U.S. indexes will fall roughly 5% to 6% from their 200-day moving averages, a common support point in pullbacks. That would be a drop to around 1,554 for the Standard & Poor's 500 Index ($INX) and 14,376 for the Dow Jones Industrial Average ($INDU). But pullbacks of 10% are common in corrections for bull markets as powerful as this one (up about 19% this year alone).

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