#$rut

[jeffhirsch]

Typical July Trading: Strength Early, Beyond Midmonth Mixed

July begins NASDAQ’s worst four months but is also the seventh best performing NASDAQ month since 1971, posting a 0.9% average gain. Lively trading often accompanies the first full month of summer as the beginning of the second half of the year tends to bring an inflow of new capital.

This creates a bullish beginning, middle, and a mixed/flat final third. On average, over the last 21 years, nearly all of July’s gains have occurred in the first 13 trading days. Once a bullish day, the last trading day of July has had a modestly bearish bias over the last 21 years. In post-election years since 1950, July has exhibited a similar pattern to the recent 21-year period with some modest weakness just ahead of Independence Day.

[jeffhirsch]

More Gains Likely in December, the Third Best Month of Year

December is the number three Dow Jones Industrials and S&P 500 month since 1950, averaging gains of 1.6% and 1.5% respectively. It’s also the third-best NASDAQ (since 1971) month. It is the second-best month for Russell 2000 (since 1979). The market rarely falls precipitously in December and a repeat of 2018 does not seem highly likely this year. In 2018, DJIA suffered its worst December performance since 1931 and its fourth worst December going all the way back to 1901. When December is down it is usually a turning point in the market—near a top or bottom. If the market has experienced fantastic gains leading up to December, stocks have consolidated in the first half of the month.

In the last eighteen election years, December’s ranking changes modestly to #2 for DJIA and S&P 500, NASDAQ’s slips to fifth place. Small caps, measured by the Russell 2000, have had a field day in election-year Decembers. Since 1980, Russell 2000 has lost ground just once in eleven election-year Decembers. The average small cap gain in all eleven years is a solid 3.5%. The Russell 2000’s single loss was in 1980 when the Prime Rate was 21.5%.

[jeffhirsch]

Fifth Down Friday/Down Monday of 2022

Market turmoil from the Russia-Ukraine war, rising oil prices and inflation fears generated DJIA’s 5thDown Friday/Down Monday off 2022. Clusters and numerous occurrences of DF/DM are not a great sign for the market as we discuss on page 78 of the 2022 Stock Trader’s Almanac. Along with the December Low Indicator triggering on February 22 this adds to the increasing concern about the direction of the market.

On the positive side, investors and traders can find some solace in the VIX (CBOE Volatility Index), which closed at 36.45 today – it’s highest level since January 2021, but well below the extreme fear levels of 50+ and well below the high of 66.04 it reached during the early days of the pandemic in March 2020. Also comforting is the fact that the market has not fallen below the intraday lows of February 24 when Russia launched the full-scale invasion of Ukraine.

Western nations are between a rock and a hard place: if we commit to Ukraine, we’re in WWIII; if we don't commit to Ukraine, we watch the unprovoked destruction of a civilized, historic, democratic nation. The next logical question then becomes, what level of death and destruction would trigger a broader conflict?

[jeffhirsch]

Small Caps Heat Up

Three weeks ago we gave you a heads up that it was Open Season for Small Caps. The Russell 2000 small cap index was beginning to rally off its new multi-year low at the end of October. Though it was still lagging big caps. Small caps are leading again today. But beware there still may be some chop as you can see here in the chart before small cap season officially opens mid-December.

[jeffhirsch]

Weakness Day After Labor Day & Sell Rosh Hashanah

In the last 21 years, only Russell 2000 has registered an average gain of 0.04% on the Tuesday after the long Labor Day weekend. DJIA, S&P 500 and NASDAQ have struggled with negative average performance. NASDAQ and Russell 2000 have been up five of the last nine years, but DJIA, S&P 500, NASDAQ and Russell 2000 all have fallen for the last four years on Tuesday. On Wednesday the market’s performance has been varied. DJIA has performed the best, up 76.2% of the time with an average gain of 0.33%. S&P 500 is worst, up only 47.6% of the time with an average gain of 0.25%. NASDAQ has a better record up 52.4% of the time on Wednesday, but a smaller average gain of 0.14%.

Sell Rosh Hashanah, Buy Yom Kippur

As the High Holidays approach you may remember the old saying on the Street, “Sell Rosh Hashanah, Buy Yom Kippur.” It gets tossed around every autumn when the “high holidays” are on the minds of traders as many of their Jewish colleagues take off to observe the Jewish New Year and Day of Atonement.

The basis for this, “Sell Rosh Hashanah, Buy Yom Kippur,” pattern is that with many traders and investors busy with religious observance and family, positions are closed out and volume fades creating a buying vacuum. Even in the age of algorithmic, computer, and high frequency trading these seasonal patterns persist as humans still need to turn the machines on and off and feed them money or take it away – and these algorithms and trading programs are written by people so the human influence is still there.

Holiday seasonality around official market holidays is something we pay close attention to (page 98 Stock Trader’s Almanac 2021). Actual stats on the most observed Hebrew holidays have been compiled in the table here. We present the data back to 1971 and when the holiday falls on a weekend the prior market close is used. It’s no coincidence that Rosh Hashanah and Yom Kippur fall in September and/or October, two dangerous and sometimes opportune months.

Perhaps it’s Talmudic wisdom but, selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times. While being long Yom Kippur to Passover has produced 64% more advances, half as many losses and average gains of 7.0%. This past year DJIA gained 19.9% from Yom Kippur 2020 to Passover 2021.

This year the high holidays arrive early on Labor Day eve, September 6, and end Thursday September 16 with Yom Kippur at mid-month one of the strongest days September. But with the market in full rally mode on easy Federal Reserve money and free Federal Government fiscal stimulus month selling ahead of the Jewish High Holidays could trigger a mild correction of 5% or so. The end of September after Triple Witching is notoriously the weakest part of the month, so it may be more prudent to “buy” later in the month.

[jeffhirsch]

NDX Uptrend Broken, Support Under Pressure

It’s May and the market is selling off a bit, so seasonally speaking all is well but, technically speaking the market is under pressure. We continue to look to the NASDAQ 100 (NDX) as a leading indicator. NDX components are the largest technology companies that are the main barometers of the global economy and economic growth.

Invesco QQQ Trust (QQQ), what we affectionately call the “Qs” is the exchange traded fund (ETF) that tracks NDX. Top holdings are: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet – AKA Google – (GOOG & GOOGL), Tesla (TSLA) and FaceBook (FB).

As we head into the last hour of trading the market is trying to rally the close. DJIA has been hit hardest today like due to heightened inflation fears and concerns that the Colonial Pipeline cyber-attack has exposed an infrastructure weakness and could drive energy prices higher. Tech’s resilience today, especially the NDX is encouraging, however as noted in the chart here the near term uptrend from the March lows has been broken (big yellow box on the right) and support at 13200 came under pressure today.

You can see NDX is trying to reclaim the pink 50-day MA around 13375 and the green dotted pivot point support line at 13386. If these levels don’t hold there is some support at 13000 where the uptrend since September runs into at present. After that the March lows come into play again in the 12200-12420 area.

Either way we have likely seen the bulk of the upside for the time being. Seasonality is back on track and the Worst Six Months, May-October, are upon us. We issued our Best Six Months Seasonal MACD Sell Signal on April 22 and it continues to appear timely. No need to sell everything in May, but it sure is a good time to consider a “Reposition in May.”

[trnpts]

Small cap stocks not participating in the comeback could be a troubling sign

"The data suggest that the small-cap warning warrants further analysis, but it is should not be taken as an outright sell signal for the broad market just because it has worked the last two times"

Source: CNBC

[estimize]

Estimize Roundtable: What’s pushing US interest rates higher? Three theories that have nothing to do with inflation

This week on the Estimize Roundtable, Estimize’s CEO, Leigh Drogen and SVP of Media, Christine Short, are joined by Nick Colas from DataTrek Research. The group discusses some theories on why yields are going up, and it’s not due to higher inflation expectations. The small cap meltdown continues on trade war fears, but that same sentiment has not been showing up thus far on earnings calls, with concerns around dollar strengthening taking center stage. We wrap up with an update on crypto, and why Tether crashed the other day, leading to an uptick in Bitcoin.