The S&P 500 finally closed above the 1850 level, after numerous attempts. That's nice, except it did it on volume a little below average. No out-of-the-park home run. That was barely a double, and even then the index made it to second base only because the shortstop dropped the ball.
Since analyzing seasonal patterns is my trade, I checked the historical track records of the major indexes to get an idea of where the markets may go from here.
Starting with the Dow Jones Industrial Average, I found a peak in the 9-week period. While most other periods have produced mediocre results, over the next 9 weeks, the DJIA has averaged a 3.6% gain, with gains in 28 out of 35 years (a ‘success' rate of 80%).
Looking at the individual years, the DJIA has had gains, over the next 9 weeks, in 8 out of the most recent 8 years.
While a 3.6% average gain may not seem like much, for an index it is a decent move (that would be an annualized rate of about 23%). If the other indexes show a similar pattern, we might conclude there could be a positive seasonal bias over the next couple of months, which would be a factor to consider in our analysis of other trade possibilities.
The S&P 500 has a similar peak in average gains and ‘success rate' at the 10-week point:
The NASDAQ Composite has a slight bump at the 10-week spot, but a ‘success rate' of only 70% is not enough to give it much credibility.
The Russell 2000 doesn't have as strong a peak either:
So over the next 9 to 10 weeks, the Dow and the S&P 500 have been stronger than the NASDAQ or smaller-cap Russell stocks. This is doesn't surprise me. Coming out of winter into spring, basic industry sales and service-related companies should do well. In North America, farm and construction equipment should sell better than in the middle of winter. Agricultural chemicals should go out the door in larger quantities. Domestic oil production should pick up. There will be fewer weather-related delays for trucking. Homeowners think about renovations, and so forth.
As to why it peaks at 9 to 10 weeks, I have no answer. Often, a peak in seasonal patterns corresponds to some predictable event, like a quarterly earnings period or even the April 15th tax deadline. But 9 to 10 weeks from this coming week works out to the end of April and early May. It will not be an earnings period or other identifiable event. But, for the next couple of months, history suggests there may be a moderate upward bias to the markets, especially in the basic industry areas.
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, type in www.markettamer.com/seasonal-forecaster
Copyright (C) 2014 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 with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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