This is Probably the Most Important Seasonal Pattern of 2018

Seasonality is one of 4 key indicators we analyze (the other 3 are: Money flow, technicals, and investor sentiment). Out of many seasonal patterns, this is probably the most important one for all of 2018.

The 2018 S&P 500 Forecast (part of the Profit Radar Report) highlighted this seasonal pattern (and chart):

2018 is a mid-term year (based on the 4-year presidential election year cycle. Historically, stocks rally from the mid-year (2018) low to the pre-election year (2019) high (on average 50%). The average S&P 500 gain over the last 5 cycles was 36.8% (see chart for individual cycle gains).

Historically (going back to 1950), stocks fall about 20% into the mid-term (2018) low. The average S&P 500 loss from the preceding high to the mid-term low over the last 5 cycles was 18.41%. However, the 2002 loss was unusually large (34.54%). Excluding 2002, the average loss over the last 4 cycles was 14.38%.”

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From the January high to the February low, the S&P 500 lost as much as 12.26%.

This is close to the average loss of 14.38% mentioned above.

Based on this seasonal pattern, we should be looking for two developments:

  1. A buyable bottom
  2. A multi-month rally

Continuous updates will be available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The 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, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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Reliable Statistic Shows 73% Probability 2014 Will be a Bad Year for S&P 500

There are helpful statistics and there are bogus statistics. This is a helpful one and it actually confirms the message of a variety of other indicators. In the process we also clear a big misconception.

It’s official, the S&P 500 lost 3.6% in the first month of 2014, the Dow Jones (DJI: ^DJI) closed 5.3% lower.

According to the January Barometer (as January goes, so goes the year), that’s bad news for the entire year of 2014.

There is a lot of truth, but also a lot of misconceptions about the January Barometer (JB).

Here are the facts, and nothing but the facts, based on S&P 500 (SNP: ^GSPC) data going back to 1970.

JB Truths

1) The JB has been correct 27 out of the last 44 years, or 73.3% of the time. As far as investment odds go, that’s pretty good.

2) In addition to the JB, I also track the Santa Claus Rally (SCR) and First 5 Days of January (F5J) indicators. In 2013/14 the SCR had a positive return, F5J and JB were down.

As the S&P 500 return table below shows (rows shaded red), there have been three such instances since 1970 (1974, 1977, 1981) when the F5J and JB were down, but the SCR up. All three early warning signals were followed by sizeable full-year losses (29.7%, 11.5%, 9.7%).

JB Myths

3) Stock Trader’s Almanac, which does a good job tracking various seasonal patterns, claims that: “Most remarkable is the record following down Januarys. Every down January on the S&P 500 since 1938, without exception, has preceded a new or extended bear market, a 10% correction, or a flat year. This is the only Stock Trader’s Almanac indicator with a perfect record.”

Let’s take a look at that ‘perfect record.’ Since 1970, there have been 17 prior down Januarys. Only eight of them were followed by full-year losses, an accuracy ratio of only 47%.

January losses in 1982, 2003, 2009, and 2010 were all followed by 10%+ corrections and full-year gains of 12.8% – 26.4%. To call this an indicator with a perfect track record doesn’t seem quite right.

It’s also possible to run the numbers based on the Dow Jones and/or go back to 1950, but the basic takeaway remains the same: Statistics suggest the S&P 500 (NYSEArca: SPY) and Dow Jones (NYSEArca: DIA) have a tough year ahead.

Statistics like this are interesting and they are a piece of the market forecasting puzzle, but they aren’t a stand-alone indicator.

Nevertheless, even if we cast a wider net, we’ll get similar feedback. Here are three more indicators and their messages:

Watch for a Bounce! But 3 Reasons Why a Larger Correction is Likely

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.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Gold Seasonality Projected This Sell off – What’s Next on the Calendar?

Central banks are buying gold, China is buying gold … and gold prices continue to slide lower. This doesn’t make sense if you’re following fundamental research. Seasonality however projected the recent drop. What’s next based on seasonal patterns?

Like a knocked out boxer, gold prices just can’t ‘get off the mat,’ and smart money gold traders have been selling into every rally.

Weak gold prices persist despite a weak dollar and a strong S&P 500 (NYSEArca: SPY).

Apparently the smart money doesn’t care that China and almost every other central bank in the world is (allegedly) buying gold (this reasoning is flawed anyway, more below).

The best hope for bullish gold investors might be a return of seasonal strength.

Below is a very unique seasonality chart specially created for subscribers of the Profit Radar Report.

It is based on actual gold prices, but can be applied to gold ETFs like the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and even the Gold Miners ETF (NYSEArca: GDX) and UltraShort Gold ProShares (NYSEArca: GLL).

The gold seasonality chart is created from averaging together 33 years of gold behavior.  But since gold is at a different price level every year, using just the average gold price would inappropriately skew the result by overweighting the years when it was at a higher level and vice versa.

To equally weigh every year, the price history is adjusted (using a divisor) to begin at the same level on the first trading day of every year.  Then each day’s values for the rest of the year reflect the percentage change from that first day of the year.

This chart was originally featured in the September 16 Profit Radar Report and projected a seasonal drop starting on October 10.

Seasonality and particular technical analysis are much better forecasting tools than fundamentals. It’s now obvious: The fundamental reasoning that gold prices must go up because central banks and China are buying doesn’t work.

The Profit Radar Report looks at technical analysis, seasonality and sentiment to identify low-risk buy/sell signals. We sold our gold position (established near the low) at 1,420 on August 27). Wednesday’s Profit Radar Report identified the must hold support level, that once broken should lead to much lower prices.

Here is why this reasoning is flawed: Why The Notion of a Demand Driven Gold Rush is Flawed

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF