The horrendous month of May dragged markets down and caused the Dow Jones Industrial Average (NYSEARCA:DIA) to lose all its gains and send it back to where we started for the year. We wanted to know if May's continuous weakness carried over to June, historically, or if June brought new life into the markets. To do this, we investigated historical analysis on Index ETFs and ETFs that track specific sectors.
In our research, we looked at average gains of Index ETFs and ETFs tracking specific sectors and their max drawdowns. Our research shows that June is historically a positive month. The ETFs we investigated are SPDR Dow Jones Industrial Average ETF, SPDR S&P 500 ETF (NYSEARCA:SPY), PowerShares QQQ (NASDAQ:QQQ), Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO), SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK), Select Sector SPDR-Energy (NYSEARCA:XLE), United States Natural Gas Fund (NYSEARCA:UNG), iShares Trust FTSE China 25 Index Fund (NYSEARCA:FXI), Select Sector SPDR- Financial (NYSEARCA:XLF) and Vanguard REIT ETF (NYSEARCA:VNQ). Here are their average gains for the past twenty-five years:
Click to enlarge.
Only one of the ten ETFs we looked at averaged a negative gain in the month of June for the past twenty-five years. To get a better view we want to see how many times exactly these ETFs have been up or down in June throughout its existence.
Based on this chart we see that 7 of the 10 ETFs analyzed have been up more than down throughout the years in June. To get better trading ideas, we want to know max drawdowns or max gains.
Based on this data, we believe the best opportunities are in FXI, JNK and UNG. FXI didn't even have a max drawdown - they have always been positive in June in their seven years of existence! With JNK the max drawdown would take us to around $37.00 and area it has not seen since late December of last year. Even though UNG has only been in existence for five years it has only experienced a positive gain in June in one of its five years and its max drawdown beats its max gain by over 25%
Trade Idea #1: Go long FXI and short UNG
Trade Idea #2: I would look to enter a JNK Jun 16 (36.74/35.74) Bull put spread.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.