Get Ready, For "The September Effect".

Watching water spill over the levies in the Ninth Ward in New Orleans was spooky stuff - it looked like a small wall was holding back the entire ocean. I find it miraculous there wasn’t a breach. Nice to know everyone is safe this time!

Over the years, a lot has been made of the so-called January Effect, which is supposed to be a fairly accurate indicator of how the entire year will fare based on the results of the first week of trading in a new year.

Here's an indicator that it believes to be more succinct in predicting the next 12 months. I call it the "September Effect", where the first week of action in September serves as a spot-on harbinger for the next full year of trading.

Last week traders were told to ignore the action as volume was too thin. So those 200 point Dow trading sessions were just examples of how exaggerated the market could be when everyone has gone to the beach or to watch Gustav!

Going back to 2003, if the market is up or flat in the first week of September, it's also been higher for the next year. Conversely, when the first week of last year saw stocks lower by 1.7%, the next 52 weeks were difficult and saw the market tumble 12%.

This week has the right mix of economic data for the market to make a meaningful move. It all cumulates with August jobs data, which is expected to see a net loss of jobs for the seventh time this year (every month).

The general consensus is for a loss of 60,000, which would be well under the average in typical recessions, but not great news by any stretch of the imagination beyond psychology. I would suspect the market will be in a tight trading range until Friday although the bias could be to the upside for a couple of reasons.

- Last week economic data releases were surprisingly better than expected.
- Crude oil looked vulnerable after of Hurricane Gustav and completely collapsed today.

The S&P 500 is positioned to make a major breakout with a close just north of 1,300 on convincing volume. Through that point the index has a pretty clear shot to 1,440, which to me is the big breakout point for a long term rally.