Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Should Stock Market Investors Worry About February’s Reputation?

Stock-Markets / Seasonal Trends Feb 11, 2012 - 11:46 AM GMT

By: Sy_Harding

Stock-Markets

Most investors are aware of the market’s various seasonal patterns.

In the Four-Year Presidential Cycle the market has a strong tendency to be positive in the last two years of each Presidential term. Within each year it tends to make most of its gains in its annual favorable season between October and May. Shorter term, it tends to be positive in the few days surrounding the end of each month.


Not as many are aware of the tendency for the market to run into trouble, even within its favorable annual season, when February rolls around.

Februaries have been particularly troublesome since 1999. It has been a down month in 8 of those 13 years, with an average decline of 4.3% in the down years.

But even that doesn’t tell the whole story. Obviously, a decline doesn’t start on the first day of February and end on the last day of the month each year. So even in years when February was an up-month it was still often involved in a period of market trouble.

For example, February was a positive month in each of the last two years, with the S&P 500 up 3.1% for February in 2010, and up 3.4% in 2011.

However, in 2010 the weakness came early, a 3-week market correction of 7.9% beginning January 19 and ending February 8. Last year the weakness arrived late, with a four-week 6.2% correction beginning February 18 and ending March 16.

So far this year there has certainly been no trouble. In fact, it’s been unusually smooth sailing, with none of the frequent, heart-stopping 200 to 400 point moves by the Dow in both directions that were experienced in the summer and fall. As of the close on Thursday the Dow has had only two days of triple-digit moves this year, and both were to the upside, a gain of 170 points on the first trading day of January, and a gain of 156 points on the 2nd trading day of February.

But there are now yellow flags waving, indicating the need to be alert.

They include that the extra exuberance of the best January in 15 years has the market quite overbought technically above key moving averages.

Then there is the high level of optimism and bullishness among investors. It’s no secret that investor sentiment tends to be very bearish at market lows and then gradually improve until it reaches extreme bullishness by the time rallies have been underway for some time, have made new highs, and may be ready to top out.

We can see that condition in several methods of measuring sentiment. This week’s poll of its members by the American Association of Individual Investors showed another jump, to 51.6% bullish and only 20.2% bearish. Historically, the AAII poll is considered to be in its warning area when bullishness reaches above 50% and bearishness drops below 20%.

The VIX Index, also known as the Fear Index, measures the sentiment of options players, and is another consistent method of measuring investor sentiment. It showed a very high level of fear or bearishness during the summer correction and at the October low. But as the rally off that low has progressed fear has disappeared, now measured at only 19 on the VIX Index, in the zone of low fear (high bullishness) usually seen near rally tops.

We also have to consider the high level of selling by corporate insiders. Corporate insiders, blessed with more information about the prospects for their companies and those of competitors than any outsider could possibly obtain, have a history of successfully buying near market lows and selling near market tops.

In the month of November as the market plunged in its first sell-off in the rally, insiders began buying heavily, at a ratio of 100 shares bought for every 80 sold according to Argus Research. But now insiders are selling at a heavy pace, a ratio of almost 600 shares sold for every 100 bought.

None of these conditions, an overbought market technically, a high level of bullish investor sentiment, a high level of insider selling, can trigger a sell signal. They can only warn a top could potentially be near. The market can always become more overbought, sentiment can always become more bullish, and insiders can continue selling.

But the combination of those conditions and the arrival of February should be enough to have investors alert, and at least cautious about wading further into the market for the time being.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in