I just came across a wonderful chart by Serge Farra over at ETF Corner. I agree that the market is nearing a pivotal juncture. As I have stated over the past few weeks, I think the S&P 500 will remain range-bound throughout most of the summer between 1040 and 1140-1170. Currently, the broad-based index slightly above the 1040 resistance at 1059 (current price of /ES – futures).
Last week I wrote about the month of June’s seasonal tendencies.
June is also a Triple Witching month. Four times a year stock options, index options and index futures all expire at the same time. The performance of the overall market immediately following June’s Triple Witching has been absolutely horrible in years past. The week after has seen the Dow down 15 out of the last 17 years. Watch to see if the market is overbought going into the week following Triple Witching. If so, this could have the potential for a decent short-term fade to the downside.
Seasonality alone is (in almost every case) not a reason place a trade. However, when compared with the current state of the market at the time the seasonal tendency arrives, the probability of a successful trade can be increased tremendously. Always be aware of the market’s seasonal picture.
With the S&P nearing a short-term oversold state and important support level at 1040, the probability of a bounce increases slightly. If that move is sustained for more than a few days is anyone’s guess, but certainly a breach and hold below 1040 could spell trouble as the market enters the summer months. If you couple the aforementioned with the bearish seasonal tendencies of the overall market during the summer (Sell in May and Go Away) months and you can see why the bears are currently foaming at the mouth.
The Stock Trader’s Almanac states that a $10,000 investment compounded to $544,323 during the November-April period over the last 56 years compared to a $272 loss for May-October. I think that sums up the significance of the historical period known as the “Summer Doldrums”.
Keep this in mind as we move into the summer months. Corrections happen. Flat periods happen. The market can’t continue to advance the way that it has since March 2009 without corrections and lengthy consolidation periods. This is the nature of the market. Consider learning alternative investment strategies as a way to diversify your current portfolio so that you are better equipped in any market environment, bullish bearish or neutral. I hope to trade a few different options-strategies next week rather than the straight put/call trade. A few mathematical plays are in order and hopefully I can take advantage. Stay tuned!
Disclosure: no positions