Tuesday, November 5, 2013

Keystone's November Seasonality for Trading the Markets

September and October are both up months which does not typically occur. Usually one or the other is down. The SPX is up 3 months in a row and up 11 of the last 13 months. November is the start of the seasonally strong pattern for stocks from November thru April where the largest gains on the long side occur in the markets. However, with the obscene upside year in the stock market due to the Fed and BOJ money-printing, expectations must be kept in check for this typical seasonality pattern. The May through October period would be expected to be weak but the SPX runs from 1550 to 1770, +14%. So caution is an operative word forward. Remember, the stats do not care about the path the markets may take from Point A to Point B so a -20% market sell off can occur into the new year and then a wild upside thrust recovery into April gaining +21% off the bottom and the seasonal November to April strength would indeed occur with a +1% gain.

November is the month when turkey's try to hide from Farmer Brown. After the Thanksgiving meal, the men lay on the couch, with a belt buckle loosened, watching football in between bouts of nodding off from the tryptophan ingestion.  The markets will be closed Thursday, 11/28/13, to enjoy the holiday. Markets will also close early at 1 PM EST on Friday, 11/29/13. This day after Thanksgiving is known as Black Friday, which used to represent the largest retail day of the year where many companies turn profitable on the year due to the strong sales this day.  In recent years, other dates nearer Christmas have taken the lead as the largest retail sales day, such as the Saturday before Christmas, but the day after Thanksgiving remains in the top three retail sales days for the year. Retailers are concerned this year with soft apparel sales but lower gasoline prices will help.  The main thing hurting retailers is the calendar. Thanksgiving is celebrated late this year with December quickly nipping at its heels. This reduces the shopping days for Christmas and will challenge retail sales. Also, data is showing that many shoppers prefer to spend limited funds on a Smartphone or other electric gadget, or accessory or app, or monthly data plan, rather than the turtleneck or cashmere sweater. Retail stocks typically peak 12/1/13 and after the stellar run this year a pull back is obviously needed.

November has 21 trading days.  The monthly Jobs Report is Friday, 11/8/13, delayed one week due to the government shutdown.  OpEx week is the week of 11/11/13 so watch for the Tuesday to Wednesday market buoyancy from 11/12/13 to 11/13/13. OpEx Monday's, 11/11/13, tend to be positive as well. Housing Starts are important on 11/26/13. The Thanksgiving holiday week begins late this year 11/25/13 and will consist of 3-1/2 days of trading, the markets are closed on Thursday with a half day Friday. Volume will be light during this week. The shortened Friday session is typically the most likely up day for the markets of the entire year. Typically, markets are buoyant in front of a holiday. The month closes on a Friday, 11/29/13, EOM.

November, on average, finishes up 0.9%. This would be an upward move in the SPX of about 16 points for the month.  The largest gains in the market are made from November thru April (typically a 7.2% gain over this five-month period); flat returns occur May thru October. Many traders look to invest money in early November but as mentioned above, stay cautious. Q4 is typically the best quarter during the year with an average return of 4.3% during October-December. Tech and biotech are typically strong in Q4 but once again these sectors led this year and need to rest.

November and December are typically considered the two best months to buy stocks with traders getting in on the ground floor to take advantage of the bullish November to April period.  New York REIT's, such as NLY, are possible long plays since much of Wall Street bonuses are spent on real estate, but, perhaps the bonuses will be paltry this year. An old Wall Street adage says, "Buy on Thanksgiving and sell on New Years to pay the Christmas bills," thus, markets typically reward the long players from mid-November into the first week of January.  Congress has a light schedule at the end of the year but this year will be different since they must resolve the same problems they had ignored one month ago. Congress in session is a market negative.

Steel stocks typically run up from November into the end of the year and you see them gaining in recent days. Traders like to buy steels the last week of November and sell them the last week of December, and then short them in January. The move higher for steels may be happening early since some have leaped higher and are not attractive moving forward. The Dawali Festival occurs over this past weekend into this week so gold buying in India tends to trail off afterwards. Gold prices were not aided by Dawali this year.  Some investment houses close out their books ending November so this sometimes leads to EOM selling. Markets are typically down one-half percent for the final two days of November. In recent years, copper has been a buy in November and sell in February-March.

Keystone's Eclipse Indicator highlights certain areas of the year as potential large market selling event areas. The April top this year was marked by this technique. Markets are in this eclipse window currently from 11/11/13 to 12/10/13.  This entire period from now into early and mid-December has potential for a large market selloff.  Markets tend to be buoyant at the full moon and tend to sell off moving into the new moon.  The new moon this month was last Sunday which results in flat markets. Another new moon occurs as December begins on 12/2/13. The full moon is 11/17/13. A major Bradley turn date was Sunday, 11/3/13 so markets remain in a window for a significant trend change to occur, or acceleration move. Perhaps last week identifies a market top?

The ECB rate decision and press conference is Thursday, 11/7/13, and a rate cut may be on tap. Europe must weaken the euro so a growth path can be established for this troubled continent.

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