July 28, 2017

Riding the Seasonal Wave

If you happened to trade the historical seasonal tendencies this week you would certainly have a fatter wallet as a result. Which brings me to tomorrow. Over the last ten years, the 22nd trading day of August (Thursday), the Dow and S&P have only experienced positive days once. If we go out 21 years, according to the Stock Trader’s Almanac, the S&P and Dow have only been higher 38.1% and 28.6% of the time on the 22nd trading day.

However, we must remember that just because the day historically finishes lower, this does not necessarily mean that the losses were significant enough to warrant a trade. After further investigation, since 1950 the average return on the 22nd trading day of August is roughly breakeven. Furthermore, with the strong seasonal tendency Friday I would be more apt to use the wait and see approach for a possible set up late Thursday, early Friday particularly if the seasonal tendency on Thursday lives up to its historical billing with the market moving lower.

The market is quickly approaching the last market holiday of the summer. The trading day before Labor Day is one of the more consistent seasonal biases and should not be overlooked. It follows the typical holiday pattern of strength immediately before the holiday followed by a bout of weakness.

As I said Friday brings one of the more consisitent seasonal biases. Over the last 50 years the trading day prior to Labor Day has been higher 75% of the time with an average return that exceeds 0.4%. This why I am more apt to take the wait and see approach tomorrow. Remember, opportunities are made up easier than losses, so pick your spots wisely.

Of course, as I always say, blindly trading seasonal tendencies is never encouraged. However, keeping a close eye on the upcoming seasonal tendencies and comparing them to the current technical situation of the market often increases the probability of a trade if the two have readings that coincide with each other.

Remember, there are no guarantess in trading, but there are always very good probabilites to be had in the trading/investment world.

Overbought/Oversold for August 29, 2007

SPY – 54.8 (neutral)

IWM – 53.1 (neutral)

DIA – 56.4 (neutral)

QQQQ – 60.3 (neutral)

GLD – 60.9 (neutral)

OIH – 66.4 (neutral)

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Andrew Crowder, www.crowderinvestments.com