In recent work we have proposed an novel modulation technique namely coded-sequence self-encoded spread spectrum (CS-SESS) that derives its spreading codes from the random information source rather than using traditional pseudorandom (PN) code generators. It is shown that the memory in CS-SESS modulated signals can deliver a 4.7dB gain in AWGN channels. In this paper, we propose to analyze the performance of CS-SESS under Rayleigh fading channel that employs iterative detection to exploit the inherent time diversity in CS-SESS modulation. We present the theoretical analysis to show its agreement with simulation results. The results demonstrate that the proposed scheme can effectively mitigate the channel fading effects by utilizing the overall diversity gain beyond the coding gain. Chip interleaving is used to improve the correlation detection performance in fading channel, which in turn can attain significant performance improvement of around 4.7dB gain at BER of around 10^-5 when compared to an chip interleaved PN-coded spread spectrum system.