Back in my April 20th article, titled What Might September Bring?, I focused on the track record of gains and losses in the month of September. I stated “There is an approximately seven year cycle in Septembers with larger losses. ”
This weekend I was looking at the seasonal patterns of the major indexes and ETFs, and something unexpected jumped out at me.
Let's look at the seasonal pattern for the S&P 500 over the next 18 weeks. I've highlighted all the years the S&P 500 produced losses over the next 18 weeks, starting from 1994 (the year number is when the 18-week period ended):
The first thing you'll notice, if you read my April 20th article, is the 7-year cycle. The S&P 500 produced a loss in 1994, seven years later in 2001, and seven years later in 2008. It did not do it in 2015, but cycles are seldom exact – they can be a little early, or a little late. So we're not out of the woods yet.
There were also a couple of other losing years – 2003 and 2009.
But I discovered something interesting when I looked at the charts for those 5 most recent losing periods. The declines started sometime in the last 4 months of each year, but every one of those 5 declines ended in the following March, or within a few days of March.
The 5 most recent declines in the S&P 500, over the next 18 weeks:
The pattern? If the S&P 500 starts a major correction within, or near to, the last 4 months of the year, the drop typically continues on into March of the following year. Most of those years do show rebounds occurring within the larger drops, but ultimately, the lowest lows were not set until March arrived.
So if this year's correction that started in August (by coincidence, about 7 years from the nearly 50% drop in late 2008) turns into a longer-term bear market, there is a good chance it would end in March of 2016, and at much lower levels than the lows set so far.
But the current rebound from the August correction looks similar to the rebound from the 2011 lows, which lead to substantial gains until this August. This time is different, right? The 7-year cycle won't return, and we won't have a resumption of the correction lasting into March. No need to even think about it. So sleep well.
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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