The S&P 500 carved out a well-defined short-term cycle low on August 7th.
The pullback, from late July into the low on August 7th, was a 4.3% drop covering 11 trading days. That was in line with the typical S&P 500 pullback:
The current rebound has gone about halfway in both distance and time of the typical S&P up-move.
What can we expect if the S&P 500 follows its historical tendencies? If we ‘bought the market' at the start of next week, there typically wouldn't be much of a net gain or loss for a couple of months. Then, as we get into mid-October, our ‘long position' would begin to steadily gain.
Six months from now the S&P 500 has typically shown a 5.9% gain. Looking at that 26 week timeframe, notice that the S&P has recorded gains in the past 5 years. The last time there was a run like that was in the 1990's, where 10 consecutive years produced 6-month gains.
LEAPS option traders may also take note that when the S&P 500 gained over the next 6 months, 21 times out of 26 the gains were 5% or greater. Looking at the SPY options, a January 2015 188 Call, currently priced around $11.25, would be 17.5 points in-the-money as it approached expiration in mid-January, if the SPY gained 5% by then. That would be a 55% gain in the January 188 Call, which would be a 110% gain annualized. All it will take is faith that the overall market, or at least the S&P 500, will continue on for at least 6 months more:
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
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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