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Short-Term Market Patterns Continue

  • Written by Syndicated Publisher No Comments Comments
    April 21, 2014

    The market has been following its short-term pattern tendencies to an unusually precise degree.

    The ‘monthly strength period’ and end-of-quarter ‘window dressing’ came and went on schedule, and produced their typical rally.

    Then the market responded to the monthly jobs report in its typical fashion, a triple-digit one to three-day move by the Dow, this time to the downside.

    The second half of the jobs pattern is that the kneejerk reaction to the jobs report is usually reversed over the subsequent few days. That certainly happened with the 191 point two-day rally.

    The next pattern was that the week before the month’s options expirations week, which was two weeks ago, tends to be negative. And the market did plunge sharply, the S&P 500 down 2.7% for the week.

    The next historical pattern was that the week of the expirations, which this week was, tends to be positive. And it was, with the S&P 500 gaining back 2.7% this week.

    Can it continue?

    If so, the next pattern is that the week after a positive options expirations week, which will be next week, tends to be negative.

    However, it is unusual for the market to follow its short-term patterns this precisely for so long (or short-term traders would have it easy). So we shall see.

    Mark Hulbert on ‘Sell in May’ seasonal timing:

    Excerpts from this week’s article on MarketWatch by Mark Hulbert, editor of Hulbert Financial Digest: Link to full article: Hulbert- Sell in April and go away-

    “To be sure, the seasonal tendency doesn’t work every year. The summer months in 2013 were one such exception, when the Dow rose 4.8% between May Day and Halloween. But it works enough of the time to be significant at the 95% confidence level that statisticians often use to decide whether a pattern is more than just a fluke.

    Another impressive statistical feat achieved by the Halloween Indicator [Sell in May and Go Away]: It’s become even more pronounced in recent decades. That’s noteworthy, because the more usual pattern is for tendencies to stop working once they are discovered and lots of investors begin to follow them.

    But not in this case. Ben Jacobsen, a finance professor at Massey University in New Zealand, says he found an article as long ago as 1935 in the Financial Times in which the “Sell in May” pattern is referred to as something that was already well-known and followed.

    Even though the pattern nearly 80 years ago already had a solid historical foundation, Jacobsen says that, since then, the difference between the average returns in winter and summer has become even bigger.

    Given this impressive record, the odds would seem to be quite low of being able to do even better . . . . . . . . but over the past 12 years, one of the two market-timing services that I monitor that regularly second-guess the “Sell in May and Go Away” system — Sy Harding’s Street Smart Report, edited by Sy Harding — has significantly increased that seasonal pattern’s performance. While the other one — Almanac Investor Newsletter, edited by Jeffrey Hirsch — has not improved on the Halloween Indicator, it at least has still beaten a buy-and-hold strategy.”

    Annualized Gain

    Risk reduction

    Sharpe Ratio

    Buy & Hold

    7.7%

    0%

    0.13

    Mechanical version of Halloween Indicator (Sell in May & Go Away)

    7.9%

    38%

    0.20

    Almanac Investor variant

    7.9%

    36%

    0.13

    Sy Harding variant

    9.2%

    39%

    0.24

    To read my weekend newspaper column click here:   There is More to the Economic Slowdown Than Just Weather

    Subscribers to Street Smart Report:

    In addition to the long-term, intermediate-term, and short-term charts and signals in the ‘premium content’ area of this blog, the Mid-Week Markets update from Wednesday is in your secure area of the Street Smart Report website The next issue of the newsletter will be out on Wednesday.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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