Market Update – Thackray Market Letter, July 2013
by Brooke Thackray, Alpha Mountain Investments
Danger Zone Ahead
In my last newsletter I mentioned that the stock market could have a short-term rally based upon the Independence Day Trade and on the 18 Calendar Day Earnings Months Effect Trade. So far the Independence Day Trade has helped boost the markets (the Independence Day Trade fi nishes on Thursday July 11th). The next trade, the Earnings Month Effect, typically helps to push the S&P 500 higher into the third week of July (see Thackray’s 2013 Investor’s Guide, page 43 for details).
The bad news is that after these positive infl uences fi nish, the market tends to perform poorly into October. Historically, from July 19th to October 27th, from 1950 to 2012, the S&P 500 has produced an average loss of 0.4%. In addition, the month of August over the same number of years has returned an average of 0.0% and September has produced a average loss of 0.6% and has only been positive 44% of the time.
This is not the time period when seasonal investors should be making large long bets on the market. Yes, it is possible that Bernanke announces that the Fed has been misunderstood and backs off his tapering talk, helping to push the markets higher. Nevertheless, this is not something that investors should be betting on, as the Fed will probably oscillate back and forth on how much to taper. In addition, backing off the taper talk will probably not provide huge sustainable runs in the broad market.
Very often the media writes about the possibility of a summer rally in the stock market. When this phenomenon occurs, it usually fi zzles by mid-July. Yes, the market can rally in August and September, but large rallies that take place during these months tend to occur when one of four conditions are in place. It is safe to say that all four of these conditions are non-existent at this time.
1) the stock market is bouncing off a bottom that has occurred as a result of a major correction
2) the economy is accelerating out of a major recession
3) earnings numbers are accelerating substantially after a very negative trend
4) the Federal Reserve substantially increases liquidity in the economy
Thackray Market Letter 2013 July
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