No sooner do we post a story about the dangers of “listening” to everything you read in the media or hear from the “experts”, we ourselves are in danger of getting seduced by a storyline making the rounds.

This specifically concerns the gloomy outlook for stocks over the very short-term, with several historical data points and some hard data regarding the upcoming earnings season which kicks off “officially” October 9, 2012 with Alcoa (AA).

Ok, we will be quick here with what we are seeing/reading:

-- Profit warnings from companies in the Standard & Poor's 500-stock index are outpacing positive earnings pre-announcements by the widest margin in 11 years. 89 have confessed that they will fall short, says Thomson Reuters. Only 21 said they would top forecasts.

That means there have been 4.2 negative profit pre-announcements for every positive one, the widest gap since the third quarter of 2001. And almost double the long-term quarterly average of 2.3; 25% of the companies blamed the euro debt crisis, while others cited a global slowdown.

Analysts now expect -2.2% negative growth in the third quarter, "which would be the first quarter of negative earnings growth since the financial crisis," Reuters analyst Greg Harrison says.

However, let’s not forget that similar very pessimistic forecasts were out prior to 2nd Qtr. earnings, and although revenues largely did disappoint, EPS came in somewhat better than final expectations.

-- From several respected sources: “The week following September expiration is known to have a negative bias with 16 of the last 21 periods showing a negative outcome for the Dow.”

-- And lastly, a concept we had never heard before, this one about what is being called “Gann Day”, named after famed investor W.D. Gann.

According to a piece from a couple years ago in Barron’s:

“Sept. 22 sees more market reversals than any other day. Blame the autumn equinox? HAPPY GANN DAY! It doesn't appear on any calendar, but Sept. 22 is known among aficionados of various and arcane market indicators as the day pinpointed by the late technical analyst, W. D. Gann, when markets are more likely to reverse than any other day of the year.

For some reason, stocks, commodities and currencies have a curious tendency to make major tops or bottoms on this day. Why the apparent coincidence of these market upheavals beginning around Sept. 22? Paul Montgomery of Universal Economics posits a possible link to the Autumnal Equinox.

This year's Autumnal Equinox comes after a substantial rally in stocks and a persistent, if much less dramatic, drop in the dollar, he says. Traders should be alert for reversals in stocks, currencies and gold for possible reversals, Montgomery advises.”

Barron’s updated the piece today, saying in part:

“Of course, financial markets will be closed this Saturday for Sept. 22, but many huge upheavals came right around that date, especially in the currency markets…What could be making a high now may be complacency, as indicated by the depressed state of the CBOE Volatility Index for the Standard & Poor's 500…The central banks may be able to stave off Gann Day, for now. But, with complacency seemingly topping out, be prepared for possible October Surprises ahead.”

Ok, let’s all say it aloud, “Free Advice Is Worth About What You Pay For It”. But with September’s reputation for volatility and the lack thereof so far this month, it does make one wonder if the markets have a big surprise lurking around the corner before the month’s end.

Good Trading!
David Wismer

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