Santa Claus Rally Starts Now
12/10/2013 6:00 am EST
‘Tis the Season for the most powerful seasonality trade of the year, Chris Vermeulen of TheGoldAndOilGuy.com.
With the stock market up big in 2013, and most participants are speculating on a pullback in the next week or two, I have to say I am on the other side of that bet. Being a technical trader I focus on patterns, statistics, and probabilities to power my ETF trading strategies. So with 37 years of stats, the seasonality chart of the S&P 500 index paints a clear picture of what is likely to happen in December.
If you do not know how to read a seasonality chart, I will explain as it’s very simple. The chart simply shows what the index has done on average through each month over the past 37 years. December typically has the strongest up trend and probability of happening than any other time of the year.
The Big Board
The NYSE also referred to as the Big Board is an index with the largest brand name companies. Most individuals do not follow this, but to me it’s as close to the holy grail of trading than anything else I know. I use many different data points from this index (momentum, order flow, trend) for my ETF trading strategies.
You must follow the trend of this index if you want to be on the right side of the market. While I follow and track the New York Stock Exchange closely, and it has its own fund (NYC), it’s an ETF trade I do not use. These big stocks are what really move the market (S&P 500), I think, so I always trade with this index trend in mind.
S&P 500 Weekly ETF Trading Strategy – Bullish
The chart below is self-explanatory I think… But let me recap.
The overall trend is up, so your ETF trades should be to the long side buying on the dips. The chart below goes back three years so the candles are a little condensed and small, but what you need to know are these two points:
- After a correction within a trend, probability says that price is more likely to continue rising than it is to reverse. Notice the market just had a running correction through the summer months.
- A reversal candle on the weekly chart (bullish reversal candle) generally indicates a two-three-week rally is likely to happen.
Conclusion: Seasonality says higher prices, weekly chart below shows bullish reversal candle… Oya!
The Bigger Picture: Three-Six Months Out…
This is a quarterly chart and BIG picture outlook. Over the next three-six months, we could see the stock market start to become choppy and roll over into a minor bear market for a couple years. That is the best case scenario, I think. The other scenario is a major crash back down to the 700-1000 level on the SP500, which would cripple the baby boomers from retiring and getting a job would be impossible for almost everyone—full-blown recession way worse than what everyone is saying we are in now.
Things are going to be really interesting over the next few years if things head south, so you better be prepared to make a killing during the next bear market or life will not be fun.
ETF Trading Strategies Holiday Conclusion
In short, I think we have a couple good weeks ahead of us. Holiday season, quality family time, and a rising stock market paints a nice picture in my mind.
By Chris Vermeulen of TheGoldAndOilGuy.com