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
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
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

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will Fiscal Cliff Uncertainty Defeat Stock Market’s Favorable Seasonality?

Stock-Markets / Stock Markets 2012 Dec 07, 2012 - 12:42 PM GMT

By: Sy_Harding

Stock-Markets

It’s no secret that the stock market makes most of its gains in the winter months, and if it’s going to have problems they usually take place in the summer months.

The pattern is so consistent that academic studies prove that over the long-term betting on the pattern even with a strategy as simplistic as the venerable old ‘Sell in May and Go Away’ dictum, outperforms the benchmark S&P 500 by a wide margin, while taking only 50% of market risk.


However, it doesn’t happen every single year. So by far the majority of investors remain skeptics, and in spite of their performance history believe there must be a way to be right 100% of the time.

Last year (2011) the market followed the seasonal pattern in classic fashion. The rally in the winter months of 2010-1011 topped out May 1, followed by a double-digit summer correction. The summer correction ended in October, and a typical winter months rally began.

This year followed a similar pattern – until June. A strong winter rally topped out in late April into a summer correction. But the correction ended at the June low, with a rally that carried the market up to a level fractionally higher than the seasonal May exit. At that point, exiting May 1 had not paid off.

But then the market pulled back again to a level lower than the May 1 peak.

The question for seasonal investors now, fractionally ahead of the market if they followed the spring exit and recent re-entry signal of my Seasonal Timing Strategy, is whether the rally that began in November was the beginning of a typical favorable season rally into next spring. 

It’s been a nervous attempt to rally so far as uncertainties over the fiscal cliff negotiations continue.

That uncertainty is not being helped by the way several months of positive economic reports that indicated the U.S. economic recovery is back on track, have been replaced by some reports for October and November that are less supportive of that conclusion.

As I wrote last week, durable goods orders were flat in October after an encouraging increase in September, new home sales fell 0.3% in October, and consumer spending declined in October for the first time in five months.

On Friday this week it was reported that the University of Michigan-Thomson Reuters Consumer Sentiment Index fell sharply in early December, from 82.7 in November to 74.5 so far this month, much worse than the consensus forecast of 82.0

The Labor Department also reported on Friday that 146,000 new jobs were created in November, much better than the consensus forecast of 95,000. But previous reports for September and October were revised down by 49,000 jobs total.

But don’t count seasonality for the winter months out yet.

The wait and see attitude of business and consumers regarding the fiscal cliff, which has been creating the recent weakness in economic reports, would likely take a decided turn for the better again if a reasonable compromise is reached to avoid the cliff, or at least kick it down the road again.

And nothing in the typically slow negotiation process so far has disabused me of expecting that outcome.

By the way if that happens, although it would a positive for a few months, down the road the remnants could provide the catalyst for the seasonal pattern to continue next summer.

So I continue to be watchfully optimistic that a typical ‘favorable season’ rally will continue to come out of the rubble of the current uncertainties.

But it is still not a time for over-confidence, or to adopt a buy and hold approach.

Until there is more clarity regarding the cliff, I favor conservative holdings like the SPDR DJIA etf, symbol DIA, and the Utilities Sector, via etf’s like the Select SPDR Utilities, symbol XLU, while holding an ample supply of cash ready to pounce on more aggressive opportunities.   

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.

Sy Harding Archive

© 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