Guess What Index Has A Strong Seasonal Pattern?

Seasonal analysis of major stocks and indexes show we are entering a ‘slow' period for the markets. A smaller number of stocks have track records of gains over the next few months than say September, where the number with strong gains over the following several months noticeably increases.

So the markets typically show weakness over the next few months: on average, smaller gains if gains, larger losses if losses. This is not surprising. Schools are closing and the Hamptons beckon to overworked traders and money managers.

But this can be a good time to pick up good name stocks, in preparation for a typically good fall rally.

For instance, the NASDAQ 100 is described as:

“The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies.”

The seasonal track record of the NASDAQ 100 shows barely any net movement over the next 2 months.

Yes, there were some years with large moves. For example, over the next 6 weeks, the NASDAQ 100 moved 8% or more in 6 of the past 27 years. But it also moved less than 4% in 11 of those years.

The above table shows that the track record picks up after 7 weeks or so. Over the next 18 weeks, the NASDAQ 100 has gained an average 4.9% a year, with gains in a strong 22 out of 27 years:

Adding 18 weeks to the current date takes us out to the 3rd week of September (which is when every analyst and financial reporter, except me, will be warning you about September having the reputation of being the worst month).

Now look more closely at the 18-week track record. The stock market normally moves in an undulating fashion according to earnings reports, group psychology, and whatever. But there are times that unusual events, typically external, affect the markets – so called ‘black swan' events or longer-term bear markets due to recessions. A proper analysis of the seasonal track record of stocks and indexes always takes unusual years into consideration.

If, in the above 18-week track record, we take out the 25% loss for 2001 and the 33.5% loss for 2002 (these was due to the ‘internet crash', which affected a lot of the NASDAQ 100 companies), and 2008 (which was a financial crash that was overdue to happen), then the NASDAQ 100's track record over more normal years becomes even more impressive.

With those 3 periods taken out, over the next 18 weeks the NASDAQ 100 has gained an average 8.6%, with gains in 22 out of 24 years. That's a 91.7% track record. And an 8.6% gain over 126 days (18 weeks) works out to a 25% average gain, annualized.

Even though individual stocks, and the major indexes, at first appear to have weak track records over the next few months, this may actually be a good time to pick up quality stocks, especially on any pullbacks. The emphasis is on quality, because you don't see this background strength in the Russell 2000, which is comprised of smaller companies and lesser-known stocks.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2015 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com.

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