A big upside move of over a 5% gain on the S&P 500 during the Worst Six Months (or the “Sell in May” period) from May through October has been followed by great gains for both frequency and magnitude. There is just one month left in the Worst Six Months. So if the market can log further gains in October and not succumb to often self-fulfilling prophecy of Octoberphobia and the curse of the 7th year that would be a solid indication for stronger gains over the next Best Six Months (November to April) and 2018.
We currently sit at +5.3% for the S&P 500 since the close of April 2017. Not bad, but not great, and right on the cusp of the level of Worst-Six-Months gains the have been more often followed by big upside moves. Look at the three tables below of “Not Bad”, “Great” and “Bad” Worst Six Months. Bad and Great were both followed by better Best Six Months returns than the Not Bad years.
Also for perspective we have included performance for the full year and the next year. Bad WSM usually accompany down years, but better following years. Great WSM have been part of up years 100% of the time and decent following years, while Not Bad WSM has occurred in better years but weaker following years.
Best Six Months on the Horizon
If the market can digest the Fed’s $10 billion monthly liquidity reduction in the financial system that begins next month and log gains in October, we should expect a solid Best Six Months. But if Octoberphobia strikes in the 7th year again, like it did in 2007, 1997 and 1987 than we would expect a softer BSM and 2018.
As you can see in the charts below of NASDAQ and S&P 500 our MACD indicators are currently not in prime Buy Signal position: above the zero line and on the verge of breaking down. Any October correction would set up or Buy Signal quite nicely. Developing…
Pulse of the Market
After bouncing around its 50-day moving average in late-August and early September, DJIA briefly broke out to new all-time highs (1) in a 9-day winning streak. Like previous consecutive daily winning streaks, that streak came to an end on September 21. Three trading days later, DJIA’s faster moving MACD “Buy” indicator (2) turned negative confirming a loss of upward momentum. DJIA’s slower moving MACD “Sell” indicator has not yet turned negative.
Over the last 18 weeks through the week ending September 22, DJIA has advanced 13 times (3) adding a cumulative 1544.75 points. These consistent yet modest gains have shored up investor and trader confidence with more than a third of these gains coming from Fridays. DJIA did suffer a Down Friday/Down Monday (DF/DM) earlier this week (4), but like other occurrences this year, a significant selloff has not materialized yet and may not.
S&P 500 and NASDAQ have not been as strong as DJIA over the past 18 weeks. S&P 500 has recorded losses in six weeks (5) while NASDAQ has been down nine times (6). Even though S&P 500 and NASDAQ weekly track record has been softer than DJIA, they have joined the new all-time high party this September.
NYSE Weekly Advancers and Decliners (7) have been in line with the market’s overall performance in recent weeks. Modest weekly gains have been accompanied by Advancers modestly outnumbering Decliners. During down weeks the opposite has held. Absent any extreme readings, the market will likely remain somewhat dull absent volatility.
NYSE Weekly New Highs (8) reversed course at the end of August and had been gaining each week until last. NYSE Weekly New Lows were also declining until last week. The trend of more highs and fewer lows need to remain intact for the rally to persist. Should New Weekly Lows expand further this week, then another modest market retreat is possible.
The spread between the 90-day Treasury Rate and the 30-Year Treasury Rate (9) appears to have bottomed during the second week of September. During the week ending September 8 the spread was as narrow as 1.66. That was the smallest difference since January 2008.