If you happened to trade the historical seasonal tendencies this week you
would certainly have a fatter wallet as a result. Which brings me to tomorrow.
Over the last ten years, the 22nd trading day of August (Thursday), the Dow and
S&P have only experienced positive days once. If we go out 21 years,
according to the Stock Trader’s Almanac, the S&P and Dow have only
been higher 38.1% and 28.6% of the time on the 22nd trading day.
However, we must remember that just because the day historically finishes
lower, this does not necessarily mean that the losses were significant enough to
warrant a trade. After further investigation, since 1950 the average return on
the 22nd trading day of August is roughly breakeven. Furthermore, with the
strong seasonal tendency Friday I would be more apt to use the wait and see
approach for a possible set up late Thursday, early Friday particularly if the
seasonal tendency on Thursday lives up to its historical billing with the market
moving lower.
The market is quickly approaching the last market holiday of the summer. The
trading day before Labor Day is one of the more consistent seasonal biases and
should not be overlooked. It follows the typical holiday pattern of strength
immediately before the holiday followed by a bout of weakness.
As I said Friday brings one of the more consisitent seasonal biases. Over the
last 50 years the trading day prior to Labor Day has been higher 75% of the time
with an average return that exceeds 0.4%. This why I am more apt to take the
wait and see approach tomorrow. Remember, opportunities are made up easier than
losses, so pick your spots wisely.
Of course, as I always say, blindly trading seasonal tendencies is never
encouraged. However, keeping a close eye on the upcoming seasonal tendencies and
comparing them to the current technical situation of the market often increases
the probability of a trade if the two have readings that coincide with each
other.
Remember, there are no guarantess in trading, but there are always very good
probabilites to be had in the trading/investment world.
Overbought/Oversold for August 29, 2007
SPY - 54.8 (neutral)
IWM - 53.1 (neutral)
DIA - 56.4
(neutral)
QQQQ - 60.3 (neutral)
GLD - 60.9 (neutral)
OIH - 66.4
(neutral)
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