August 17, 2017

Intra-day Reversal Window Dressing? Overwhelming Short-Term Seasonal Bias Ahead

The market moved sharply lower shortly after the open only to reverse itself 90 minutes before the close of the trading day. Was the intra-day reversal just end of the month/quarter window dressing or an early start to the upcoming positive seasonal bias? My guess is the former, but it is just that, a guess. I would still like to see a dip down to the 1410 area of the S&P (like everyone else it seems) before seriously considering a position on the long side. Tomorrow is the last trading of March and the short-term seasonal picture is historically bleak. However, the bearish tendencies are quickly reversed as we move into the first week of April.

Given the upcoming seasonal bias I think a portion of yesterday’s post is worth repeating. I stated “according to the Stock Trader’s Almanac (an invaluable tool) the last trading day of March has been lower 13 out of the last 17 years with significant losses. If the market does move lower we should expect to see “oversold” to “very oversold” conditions which should prove to be an area for considering short-term long exposure.

 

Moreover, the first few trading days are historically very bullish. The first trading day of April has finished higher 9 out of the last 12 years and the trading day prior to Good Friday  has been higher in the S&P 9 out of the last 11 years with an average return that exceeds 0.5%.

As I have stated repeatedly over the history of this blog, seasonality should never be the sole reason to place a trade. However, when coupled with technical analysis it can be a wonderful tool, so being aware of the historical seasonal conditions can certainly give you an extra edge when considering trading a position. I think we could be in one of those instances where being aware of the seasonal picture could be advantageous.”

Overbought/Oversold levels for March 29, 2007

  • SPY – 49.8 (neutral)
  • DIA – 47.4 (neutral)
  • IWM – 50.0 (neutral)
  • QQQQ – 42.9 (neutral)
  • OIH – 72.1 (overbought)
  • GLD – 55.0 (neutral)

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