Why are Stocks Down Despite Bullish Seasonality?

In terms of seasonality, December is the strongest month of the year. Nevertheless, the S&P 500 is down almost 2% since its December 1st pop. Why?

One reason is buyers’ fatigue.

The December 6 Profit Radar Report featured the following analysis:

The S&P 500 rallied 2.01% on Friday. Since the beginning of 2011, the S&P 500 gained more than 2% on 21 days. On average, 2171 stocks advanced (based on NYSE advancers/decliners) on those days. On Friday, only 953 stocks advanced. In other words, breadth behind Friday’s gain was dismal. The chart below lists all 2%+ S&P 500 gains since 2011 and the accompanying NYSE advance number (inversed for easier viewing).

Our various gauges of internal strength show additional weakening since the December 1 spike high. This is in harmony with the notion that the 2009 bull market is losing steam, but conflicts with bullish seasonality into Q1/Q2 2016.”

Seasonality still suggests further gains, but based on market breadth (or lack thereof), risk management is becoming more important.

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

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