Friday, November 7, 2014

Keystone's November Seasonality Factors for Trading Markets

The September-October stock market selloff is a distant memory as the bulls perform a 100% Fibonacci retracement and print new all-time highs each day this week as the new month is underway. November is in full bullish mode fueled by seasonality factors. Traders are giddy over how the stars are aligned for more bull joy. First of all, the stock market is typically buoyant from the last day of the month into the first four days of the new month; this occurs ending yesterday's 11/6/14 session.

Second, the November through April period is when the stock market outperforms during the year providing another reason for long traders to remain bullish. Third, the third year of the four-year presidential cycle is the most bullish of the cycle. Further, since the 1940's, the period after mid-term elections, October to October, is up in every instance. This equates to October 2014 through October 2015 providing another excuse to buy the market and traders are tripping over each other to buy any stock with a heartbeat. To add icing on the cake, all years that end in "5" are up since the Great Depression pointing to a joyous 2015. No wonder the bulls are giddy. The central bankers continue to juice the stock market so everyone sees nothing but blue skies and rainbows well through next year. The party is in full swing.

September is a weak month which occurred. For September and October, usually one or the other is down which also occurred; September was down and October finished up. 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, the obscene central banker money printing simply sends stocks higher continuously.

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, 11/27/14, to enjoy the holiday. Markets will also close early at 1 PM EST on Friday, 11/28/14, which is the EOM.

This day after Thanksgiving is known as Black Friday, which used to represent the largest retail shopping day of the year where many companies turn profitable on the year due to the strong sales this day (the books go from red ink to black ink). In recent years, the weekend days before Christmas have taken the lead as the largest retail sales days but the day after Thanksgiving remains in the top retail sales days for the year. Retailers are concerned this year due to very light store traffic 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. Retail stocks typically peak as December begins.

November has 19 trading days.  The monthly Jobs Report is today, Friday, 11/7/14.  OpEx week is the week of 11/17/14 so watch for Tuesday to Wednesday market buoyancy from 11/18/14 to 11/19/14. Thursday, 11/13/14, will be expected to be volatile (stock market weakness). OpEx Monday's, 11/17/14, tend to be positive days. Housing Starts are important on 11/19/14. The Thanksgiving holiday week begins late this year 11/24/14 and will consist of 3-1/2 days of trading to end the month; the markets are closed on Thursday with a half day Friday. Volume will be light during this week. The shortened Friday session (11/28/14) is typically the most likely up day for the markets of the entire year. Typically, markets are buoyant in front of a holiday (11/25/14 and 11/26/14). The month closes on Friday, 11/28/14; EOM.

November, on average, finishes up 0.9%. 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 (although the central bankers create constant upside with the easy money over the last few years). Many traders look to invest money in early November and that is occurring in spades in recent days. 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 these sectors as well as nearly all other asset classes are already pumped to robust highs.

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 into the end of the year since much of Wall Street bonuses are spent on real estate. 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 to finish the end of the year in a 'lame duck' session. Lawmakers will prefer to do the heavy lifting once the new year begins after 11/5/14 but will tackle spending bills for Ebola and the war against ISIS as well as potential tax breaks. The stock market is typically down when Congress is in session and up when not in session. So the fighting between Congress and the president may create some angst but traders will expect the holiday cheer and positive seasonality mentioned above to overrule any gloominess.

Steel stocks typically run up from November into the end of the year and you see them gaining in recent days. The world's largest steel producer, MT, pops +3% this morning on positive earnings. Traders like to buy steels the last week of November and sell them the last week of December, and then short them in January. Steel stocks are at lofty levels like all other sectors, however, due to the central banker intervention so seasonality factors must be viewed in this context and age of never-ending easy money.

The Dawali Festival occurred in late October a week or so ago so gold buying in India tends to trail off afterwards. Gold prices were not aided by Dawali this year. In recent years, copper has been a buy in November and sell in February-March. Back to stocks, 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. This year the final two days are the Thanksgiving holiday so the EOM November lull may occur during the final week and at least negate the positivity expected by moving into a holiday.

On the eclectic side, Keystone's Eclipse Indicator highlights certain areas of the year as potential large market selling event areas. The September top this year was marked by this technique one year in advance and nailed that top within days. Markets are in another eclipse window currently through the EOM which makes the markets vulnerable to a potential large market selloff to begin like September-October. Markets tend to be buoyant at the full moon and tend to sell off moving into the new moon. Interestingly, the full moon occurred last evening, 11/6/14, at 5 PM EST and the stock market floated higher moving into the full moon. The new moon is 11/22/14 so market weakness may be on tap from 11/21/14 through 11/24/14. Monday, 11/24/14, is the deadline for the US and Iran to reach a nuclear agreement.

A Bradley turn date occurs 11/22/14, then 12/7/14 and 12/26/14, so a wild finish may be on tap to the end the trading year (3 turns over the next seven weeks). Bradley turns do not predict direction only that a market inflection point is at hand. For the 11/22/14 turn date, a window is open now, from 11/10/14 through 11/28/14 for a market inflection point, or melt-up or melt-down, to occur, and more specifically 11/19/14 through 11/26/14. The 10/7/14 Bradley turn resulted in a market bottom and the 10/16/14 turn, the last turn date, resulted in a market top, so the two previous Bradley's were spot on.

The ECB rate decision and press conference occurred yesterday, Thursday, 11/6/14, and President Draghi talked dovishly bashing the euro lower. Europe must weaken the euro so a growth path can develop for this troubled continent. The US Monthly Jobs Report is imminent, today, 11/7/14.

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