Posts Tagged ‘seasonality’

S&P 500: On a knife’s edge

S&P 500: On a knife’s edge

Courtesy of Prieur du Plessis, Investment Postcards from Cape Town

Last Thursday was a so-called 90% down-day for American stock markets (and many other bourses also recorded downward dynamics). A 90% down-day is defined as a day when downside volume equals 90% or more of the total upside plus downside volume and points lost equal 90% or more of the total points gained plus points lost. The historical record show that 90% down-days do not usually occur as a single incident on the bottom day of an important decline, but typically on a number of occasions throughout a major decline. As far as the very short term is concerned, 90% down-days are often followed by two- to seven-day bounces.

The stock market is on a knife’s edge at the moment as seen in the chart below, showing the long-term trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (ROC) indicator (red line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1990, 1994, 2000 to 2003, and in 2007. And 2010? With the ROC delicately perched just above the zero line, the primary trend is still bullish, but barely so.

Source: StockChart.com.

Regarding seasonality, I have done a short analysis of the historical pattern of monthly returns for the S&P 500 Index from 1950 to August 2010. The results are summarized in the graph below.

Source: Plexus Asset Management (based on data from I-Net Bridge).

As shown, the six-month period from May to October has historically been weaker than the period from November to April as seen in the average monthly return of 1.05% for the “good six months” compared with 0.25%% for the “bad six months”. Importantly, when considering individual months, September (-0.18%) and October (-0.19%) have historically been the only two negative months of the year. (A word of warning, though: one should take cognizance of seasonality but understand that it is not a stand-alone indicator and it is anybody’s guess whether a specific year will conform to the historical pattern.)

Where does this leave us at this juncture? Considering an array of indicators, we are somewhat in no-man’s land regarding whether the bull or bear will…
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THE 2 BIGGEST RISKS TO THE BULL MARKET

THE 2 BIGGEST RISKS TO THE BULL MARKET

Courtesy of The Pragmatic Capitalist

This is a re-post from an article we wrote for TheStreet.com:

The rally off the March 8th lows has been nothing but spectacular.   In hindsight, it’s clear that investors overreacted to the downside, but as stocks surge more than 50% it’s time to begin pondering whether the current rally is a bit ahead of itself.  Contrary to my bottom call on March 8th when I said it was time to invest in risky assets (a full history of my 2008/9 calls can be found here including our 2008 crash call and March 8 buy call), now is the time to put on your risk management cap on as a number of various threats begin to pop up across the market.    I recently turned near-term bearish on stocks due to 2 primary reasons: sentiment & seasonality.

1)  Sentiment – As I often say, psychology drives markets.  After months of skepticism regarding the rally we are finally beginning to see an overwhelming amount of bullishness.  This is a screaming contrarian indicator.  The latest consumer confidence readings showed a marked jump to 54.1 and bullish sentiment among fund managers has soared to its highest level since 2003:

The latest Merrill Lynch fund managers survey shows an extraordinary jump in optimistic sentiment.   The survey makes up the current psychology of 204 portfolio managers running over $550B in assets.  The report shows a 63% jump in sentiment since July and the highest reading since November of 2003.

After months of short squeezes and failed market declines this optimistic sentiment has begun to eat into one of the fuels of this rally: short sellers.  Recent short sales data shows the lowest readings since the market tanked in early February.  As we lose the short sellers we lose an important driver of higher prices.

BESPOKE THE 2 BIGGEST RISKS TO THE BULL MARKET

Perhaps most important has been the enormous shift in analyst estimates.  After turning bearish in early June, I reversed the position in early July for one reason – earnings.  My analysis led me to believe that estimates were far too low primarily due to the fact that analysts were not accounting for cost cuts.  The estimates have been outrageously low, but now as the consensus begins to believe in a full blown recovery the


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VIX at Seasonal Cycle Low

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VIX at Seasonal Cycle Low

Courtesy of Bill Luby at VIX AND MORE

With the VIX now getting comfortable in the 20s, there has been a fair amount of discussion about just how low we can expect the VIX to go in the next few months.

Back in April, in The New VIX Macro Cycle Picture, I predicted that the VIX will likely not drop below the 25-27 area in the current bull market. That prediction has held up so far, but will almost certainly be tested during the summer months.

Most investors tend to think of the summer season as something of a horse latitudes of sorts for trading, with volume tailing off, portfolio managers on vacation and stocks sometimes set to cruise control. As a result, most people equate summer with lower volatility.

While the VIX does tend to follow a distinct seasonal cycle, the truth of the matter is that we are now at the seasonal cycle low, with volatility historically increasing dramatically from June through October. In fact, over the course of the past two decades the increase in volatility has been highest from June to July, increasing by over 10% (1.82 points.) The pattern is quite distinct in the chart below, which shows composite monthly volatility from January 1990 through last month, using 100 as the series mean.

So…while volatility may indeed trend lower as some of the concerns about the global recession are put to rest in the next few months, lower volatility will have to counter the established seasonal cycle.

For some previous posts on the same subject, try:

Seasonal VIX Chart

[graphic: VIXandMore]

Disclosure: Neutral position in VIX via options at time of writing

 


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Zero Hedge

Has E.T. Gone Home?

Courtesy of ZeroHedge. View original post here.

UFO sightings have been making headlines again lately, notably with The New York Times running an interesting article about several U.S. Navy fighter pilots encountering mysterious objects near the southeastern coast of the United States.

That high-profile story remains unexplained and so do plenty of other UFO sightings reported by members of the public every year like strange lights crossing the night sky or orange disks hovering in the distance.

However, as Sta...



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Phil's Favorites

Food waste: using sustainable innovation to cut down what we throw away

 

Food waste: using sustainable innovation to cut down what we throw away

shutterstock.

Courtesy of Mehrnaz Tajmir, University of Bath and Baris Yalabik, University of Bath

Our appetite for food is a serious problem. The huge amount of energy, land and water used to fill our supermarket shelves mean that modern overproduction and excessive consumerism are rapidly depleting resources and damaging the planet.

Yet still, more than one-third of the world’s food...



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Kimble Charting Solutions

Doc Copper Is Pushing Higher Off 18-Year Rising Support, Says Joe Friday

Courtesy of Chris Kimble.

Gold & Silver have been hot of late! Is Doc Copper about to do the same? Possible says Joe Friday.

This chart looks at Copper Futures over the past 27-years. Copper has spent the majority of that time inside of rising channel (1).

The decline over the past year has Doc Copper testing 18-year rising support and lows of the past 8-months at (2).

Joe Friday Just The Facts Ma’am- Copper is attempting to rally off of long-term support at (3). As Copper is testing the bottom of this support channel, smart money hedgers are making a bi...



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Insider Scoop

Benzinga's Top Upgrades, Downgrades For July 19, 2019

Courtesy of Benzinga.

Upgrades
  • For American International Group Inc (NYSE: AIG), William Blair upgraded the previous rating of Market Perform to the current rating Outperform. American International Gr earned $1.58 in the first quarter, compared to $1.04 in the year-ago quarter. American International Gr's market-cap stands at $48,358,299,270. At the moment, the stock has a 52-week-high of $56.49 and a 52-week-low of $36.16. American International Gr c...


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Chart School

RTT Plus Chart Book (Sneak Peak)

Courtesy of Read the Ticker.

The magic of support and resistance channel lines and how they direct price. Here are some chart disclosed to members via the RTT Plus service. All charts are a few weeks old. 


XAU bound by parallel channel lines.


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Newmont Mining support from Gann Angles.



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US Dollar index (DXY) dominate cycle ...

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Digital Currencies

Cryptos Suddenly Panic-Bid, Bitcoin Back Above $10k

Courtesy of ZeroHedge. View original post here.

Following further selling pressure overnight, someone (or more than one) has decided to buy-the-dip in cryptos this morning, sending Bitcoin (and most of the altcoins) soaring...

A sea of green...

Source: Coin360

Bitcoin surged back above $10,000...

Ethereum bounced off suppo...



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Biotech

DNA testing companies offer telomere testing - but what does it tell you about aging and disease risk?

Reminder: We're is available to chat with Members, comments are found below each post.

 

DNA testing companies offer telomere testing – but what does it tell you about aging and disease risk?

A telomere age test kit from Telomere Diagnostics Inc. and saliva. collection kit from 23andMe. Anna Hoychuk/Shutterstock.com

Courtesy of Patricia Opresko, University of Pittsburgh and Elise Fouquerel, ...



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ValueWalk

Professor Shubha Ghosh On The Current State Of Gene Editing

 

Professor Shubha Ghosh On The Current State Of Gene Editing

Courtesy of Jacob Wolinsky, ValueWalk

ValueWalk’s Q&A session with Professor Shubha Ghosh, a professor of law and the director of the Syracuse Intellectual Property Law Institute. In this interview, Professor Ghosh discusses his background, the Human Genome Project, the current state of gene editing, 3D printing for organ operations, and gene editing regulation.

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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