June 26, 2017

Short-Term Seasonal and Technical Picture

The month of March and the first quarter are finally winding down. As you can see below the major benchmarks are nearing an oversold state. The next two trading days are historically weak with the probability in the S&P of a advancing day at only 33% and 48%. Furthermore, 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.

My ETF Extremes strategy takes advantage of these types of situations and so far the track record has been outstanding. The strategy is higher 42.7% since it was initiated on Jan.1, 2006. My goal was to outperform the major benchmarks and the strategy has done so handily. So, it surely pays to be aware of the short-term seasonal picture.

Overbought/Oversold levels for March 28, 2007

  • SPY – 47.2 (neutral)
  • DIA – 41.0 (neutral)
  • IWM – 49.0 (neutral)
  • QQQQ – 40.8 (neutral)
  • OIH – 61.5 (neutral)
  • GLD – 68.9 (neutral)

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