WATCH: The 4 Stage Stock Market Cycle

Articles

Trading Secret: 12-day sweet spot coming in 6 Days!

By Chris Rowe June 20, 2007 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

Hey, Gang!

First, a belated Happy Fathers' Day to all you dads out there!  I just had my first Fathers' Day as a father, and now I understand why we get a day!  We deserve it!  I spent mine with my dad, his dad, his brothers (who are dads,) and my cousins (who are dads,) so there had to be about 7-10 dads there.  This totally diluted my birthday which, by the way, I share with my grandmother who was there, too!  ;=-(

Let's get down to biz!

First, a quick note to the Tycoon readers, and then I'll let you in on a profitable trading secret that will be tradable in less than a week from today!

NOTE: I truly appreciate the feedback (good or bad) that you all leave by clicking the link at the bottom of the article.  And I get a lot of questions from you folks.  This is great!  With the questions that you ask, I can do three things:

1) Use them in a future Thursday Tycoon Report article structured as a Q&A.  (This helps EVERYONE, and helping people is really what drives the Tycoon Family.)

2) Read them and not actually get around to answering them.  There are lots of them, and I only get to write in The Tycoon Report once per week.  But this is STILL a major benefit, because with every question, I get a better idea of who I'm writing to and what you would like to learn about.

3) Answer you directly.  If you've ever received an answer directly from me, then you are (I hesitate to say) "lucky", in the top 3% - 5%, because it's only fair that I mainly devote my time to the folks who paid for a membership to TTR.  BUT, there are a few questions that I'm dying to answer directly, only the folks who ask them assume that I know their e-mail addresses.

So, Guys and Gals - If you have a question to ask in the "rate this article" section below the article, I may not answer it directly, but if you want that possibility to exist, you have to leave your e-mail.  (And remember that I can't legally answer any questions directly related to your personal financial situation or direction.  However, I can answer those questions, generally speaking, in a future article.)

Moving right along...

Don't be fooled this time around!

The "summer rally" is the second most anticipated rally of the year next to the "Santa Claus rally," but typically, it's really the weakest of all seasonal rallies. 

The notion that the summertime is typically one of the best times of the year to invest was true 40-50 years ago because of the outlook for crops.  However, since  the 21st century version of the US is not as much of an agricultural economy as it is a tech-driven economy, the "summer rally" has lost its strength - for the most part.

But there IS typically a short-term rally in the NASDAQ that's tradable that you should know about, from the end of June to the beginning of July.  Specifically, the rally seems to last from the third to last trading day of June, to the 9th trading day of July.  What that means this year is that the seasonal sweet spot is from June 27 - July 13.

This 12-day rally in the NASDAQ has averaged:

3.12% since 1990
2.60% since 1987
2.32% since 1985

Since 1987, the 12-day period lost four times (in 1996, 2002, 2004 and 2006.)

Before I go any further, let's remember what I am constantly preaching which is that we must always take a synergistic approach to investing.  That is, we must not let one single indicator, or seasonal pattern dictate our trading approach.  Instead, we must use one to confirm another which increases our odds of success tremendously.

While it might make sense for some people to invest their money based on stock market cycles, it's important to remember that these statistics would have only shown the average profits listed above if you did the same exact thing (and nothing else) in each of the years mentioned.

You may have heard that the "best six months" for "the market" are from November 1 through May 1.  (This, by the way, is false if you're talking about statistics starting in 1990.  The best month of the year has been October for the major indices except the NASDAQ, which has still performed very well in October.)  But when it comes to the NASDAQ, we look at the "best eight months" which technically end at the end of June.

If it ends in June, then what about this 12-day sweet spot that you're talking about, Chris?

July is actually one of the worst performing months for the NASDAQ because historically/statistically/typically/on average, yaddi, yaddi, yadda, the NASDAQ has tanked in July after the 12-day sweet spot.

Anyway, the main reason that this 12-day trading period exists is that the first month in each quarter is usually the best performing month, especially in the first three quarters.  (So, January, April, JULY, and, in recent years, October.)

This is because institutions tend to dump a ton of cash into the market on an annual, semi-annual, and quarterly basis (at the beginning of each.)

It may also interest you, while we're on the subject, that the last few trading days and the first few trading days of any month are typically the strongest.  (Once upon a time, it was the last day of the month plus the first four days of the month that were the strongest, but when people figure out that the trend exists, they tend to front run it in anticipation of an upside move, which has moved this trend back a few days.)

Any-who, an up market in the 12-trading-day period is certainly not a guarantee, but what I will guarantee you is that there are huge institutions out there that dump lots of cash into the market on a semi-annual basis.  The NASDAQ is the index that typically benefits the most.

I hope that you do, too!

If the NASDAQ doesn't post the 20-year average returns that I mentioned from June 27 - July 13, then at least maybe I taught someone something that they didn't know.

Hooray!

Archives