Todays Lesson of the Day: November Stock Seasonality November maintains its status among the top performing months as fourth-quarter cash inflows from institutions drive November to lead the best consecutive three-month span November-January. The month has taken hits during bear markets and November 2000, down –22.9% (undecided election and a nascent bear), was NASDAQ’s second worst month on record—only October 1987 was worse. November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ according to Stock Traders Almanac. Small caps come into favor during November, but don’t really take off until the last two weeks of the year. November is the number-three DJIA and S&P 500 month since 1950. Since 1971, November ranks third for NASDAQ. November is second best for Russell 1000 and Russell 2000 third best since 1979. In midterm years, November’s market prowess is relatively unchanged. DJIA has advanced in 12 of the last 16 midterm years since 1950 with an average gain of 2.5%. S&P 500 has also been up in 12 of the past 16 midterm years, gaining on average 2.7%. Small-caps perform well with Russell 2000 climbing in 6 of the past 8 midterm years, averaging 3.9%. The only real blemish in the November midterm-year record is 1974 (DJIA –7.0%, bear market ended in December). Options expiration often coincides with the week before Thanksgiving. DJIA posted ten straight gains 1993-2002 and has been up 16 of the last 21 weeks before Thanksgiving. The Monday of expiration week had been streaky with the DJIA up five straight, 1994-1998, during the bulk of the last 20th Century bull market, down five in a row, 1999-2003, up three, 2004-2006, but has been mixed since 2007, up three and down four. The net result is a bearish down 9 times in the last 15 years. Options expiration day has a clearly bullish bias, up 10 of the last 12. The week after expiration has been weak lately, down five of the last eight, but up 9.7% in 2008, enough to be the best November weekly DJIA performance since 1950. Being a bullish month November has seven bullish days, though it does have weak points. NASDAQ and Russell 2000 exhibit the greatest strength at the beginning and end of November. Russell 2000 is notably bearish on the 12th trading day of the month, when the small-cap benchmark has risen just four times in the last 30 years (since 1984). The Russell 2000’s average decline is 0.53% on the day. Recent weakness around Thanksgiving has shifted DJIA and S&P 500 strength to mirror that of NASDAQ and Russell 2000 with the majority of bullish days at the beginning and end of the month. The best way to trade Thanksgiving is to go long into weakness the week before the holiday and exit into strength just before or after. To access our online swing trading course and receive our daily commentary please subscribe at Northstaractiveequitytrading
Posted on: Sat, 01 Nov 2014 07:44:51 +0000