Sunday, July 7, 2013

Keystone's July Seasonality Factors for Trading the Markets

The broad markets experience the best gains from November thru April, and flat or down returns May thru October.  Hence, the Wall Street adage, “Sell in May and go away.”  This certainly worked this year, where markets topped on 5/22/13, at least so far. The bulls mount a comeback over the last couple weeks.  Markets are typically bullish from the last day of the month through the first four days of the new month, and that occurs over the last few days. Equities are also usually buoyant in front of a holiday and this works for the upside over the last few days with Independence Day as well.  Markets tend to be bullish on the Monday following a holiday weekend.

July is typically up about 1.4% on average, a counter trend month within that May to October weak time period. July is typically a bad month for OTC trading and a bad month for the RUT, so keep this in mind while trading small caps.

The month, and new quarter, Q3, began on Monday, 7/1/13,and the Monthly Jobs Report was released last Friday, 7/5/13. A new moon occurs 7/8/13 (overnight Sunday) and markets are typically bearish through the new moon which conflicts with the typically Monday bullishness after a holiday highlighted above.  Consumer Sentiment is important on 7/12/13. Congress is in session for the month (except for a few days with the July 4th holiday) so this is a market negative. Housing Starts are 7/17/13, a key market metric.  Markets are typically bullish through the full moon on Monday 7/22/13.  For OpEx week, the week of 7/15/13, Monday, would be expected to be buoyant for markets, then the time period from a low on Tuesday, 7/16/13, into a Wednesday high would also be expected to be buoyant.  Markets will tend to move the opposite direction on Monday, 7/22/13, as compared to the movement on OpEx day on Friday, 7/19/13. Consumer Sentiment is released on Friday, 7/26/13.  Chairman Bernanke testifies before Congress on 7/17/13 and 7/18/13 and markets are typically bullish in this period, say, from 7/16/13 through 7/19/13. The Fed meeting is 7/30/13 and 7/31/13 which creates drama at the end of the month. Consumer Confidence is important on Tuesday, 7/30/13. The EOM is Wednesday, 7/31/13.

Hurricane watches will increase as the summer proceeds so oil trading will continue to be volatile with price moving higher than the current premium occurring for the Egypt, Syria and Turkey unrest.  HD and LOW typically receive bounces for storms since folks run to stores to buy plywood and generators and video on television will whip everyone into a tizzy. GNRC, URI and other disaster clean-up type stocks are in vogue during hurricanes. The oil and natty markets react to hurricanes but perhaps not as much as in the past since the fuel sources have diversified in recent years. The important thing to watch is when the storms form off the coast of Africa.

Typically, the VIX, volatility, bottoms in early July, the May thru early July time frame, and considering the recent recovery move in markets, a potential trade is buying into volatility as time moves forward. This would serve as a nice hedge anyways in these whipsaw markets. There is typically a summer rally each year and July is a proper time frame to consider.  The summer rally is typically a week or two event.  Tech tends to bottom in July. There is usually a tech conference and a biotech conference this month so the individual stocks in these sectors require close watching. July and August typically outperform in elections years but this is not an election year.

Oil drillers typically run in August so buying them in July tends to work out well. Oil tends to be strong from late June into early July which is the case this year with the Middle East violence creating a double whammy to send crude higher. Beverages, soda and beer stocks tend to peak in July since folks do not drink as much in the winter months, so consider this for beverage stocks such as KO or BUD. Europe economic activity tends to slow down in late July and August and the last thing they need is slowness since the continent is mired in recession and depression. The seasonality above points to the center of the month as having a high likelihood for bullish equity markets, say from 7/15/13 through 7/23/13. Thus, in an ideal trading world, a bearish week this week, 7/8/13 through 7/12/13, would set up nicely for a bullish week next week.

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