Apologies for the late posting so far this week. I was away at a family wedding and missed the regular scheduled posts.
Brace yourself because we are about to enter the best months of the year for the stock market. This seasonality pattern is most commonly called the “Halloween indicator” and lasts from November to April - where most of the returns have tended to originate historically.
But this year was atypical in that we had a spectacular rally early in the year. In fact, this was arguably the most hated rally since very few purportedly believed in it or predicted it. And yet it happened. In any case, seasonality patterns should not be confused with blueprints. They are merely loose fitting guides to be draped over price action. The stock market certainly does not heed them every cycle.
According to Mary Ann Bartels, a technical analyst ranked second by Institutional Investor magazine, the weakness we should have seen may simply be delayed, rather than skipped outright. Here is a chart comparing the S&P 500 so far this year, compared with the other instances where seasonality was turned upside down:
While Bartels is looking forward to a correction to end the year, she does expect that to set up a base for further gains next year. She expects the S&P 500 to reach 1325, a further 22% rise from here.
Diligent readers will recall a historical study provided by guest writer, Wayne Whaley where 7 consecutive months of positive return have a surprisingly bullish bias going forward. October isn’t over obviously but with a 3.21% return (so far) we are set for a continuation of the short term strength that defies the intuitive expectation of ‘mean reversion’ after so many positive months.
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