While traders could come back this week in a buying mood and quickly end this downtrend, the odds are the index will head towards the bottom of the channel. So the likely near-term target is the 2000 level, within 1 to 3 weeks.
While this chart won't impress the odds-makers, the S&P 500's track record over the next 3 weeks is slightly biased to the downside. At least there isn't a strong positive seasonal track record to consider.
Experienced traders could consider a number of bearish trades on the S&P 500 or the SPY, or a long position in an inverse ETF, such as SDS.
The number of stocks with strong seasonal patterns decreases this time of year, as traders wait for January's earnings release cycle to start. But what if our confidence of a market drop is buoyed by the S&P's down-trending channel, and we want to consider individual stocks that could be shorted (or bearish option positions opened up against)?
Seasonal patterns won't help much here. What will help is analysis of earnings release track records.
In today's Seasonal Forecaster, I cover a stock that filled the gap from a late August sell-off, but quickly headed back down. If the support level of the past two months is breached, this stock could fall quite a ways.
This company will announce earnings in several weeks, about 20 to 30 trading sessions from now. This stock does have a slightly negative track record over the next several weeks. But let's look at this stock's track record through its February earnings announcement.
While there were two or three decent gains, this stock has more often declined going into the earnings announcement.
Actually, this stock doesn't have a great track record going through ANY earnings announcement:
But there is little in this stock's chart, seasonal pattern, or track record of gains/losses through earnings (or the overall market for that matter) to suggest it is likely to return to recent highs. Instead, a bearish earnings-release trade with a tight stop loss looks like the better bet, and that is what I cover in today's newsletter.
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
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Gregg Harris is the Chief Technical Strategist at MarketTamer.com.
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