The Seasonal Pattern Has Been Working Like a Charm

The seasonal pattern is championed by Sy Harding, and this weekend he points out how it has been working fine for his subscribers. You can see the seasonal chart here with some discussion. Suffice to say the pattern suggests to buy in Nov and sell in May. Sy usually gives the all clear signal in Nov based on the MACD crossing to positive. A typical year has: 

• bad patch in Sep/Oct 
• Santa Rally into Jan
• soft Feb
• good rally into April
• May is the tricky month, and usually has a down draft that swoons into June
• Summer Rally in July with an Aug top
• then back to the bad patch in Sep/Oct

The prior two years have not really fit the pattern, but were close. We had the crash in Sep/Oct 2008, and a rally in Nov, but it sputtered and went lower in Mar. We then had a good rally into May, then a sideways move with a small spike in June followed by the June Swoon to a bottom in July. That led to a nice Summer Rally into August, and it kept going in a stuttering fashion all the way into a slow patch in Nov 2009. 

Then the pattern got back on track. We had a Santa Rally from Nov 2009 to Jan 2010, then the drop into Feb and a nice rally into late April. After a sideways move into early May, the Flash Crash was followed by a June Swoon into July 2. Then we have had our nice Summer Rally into mid August. Now we enter the Danger Season. If the pattern persists, stay out until late Oct/early Nov. 

Comments

[Hockthefarm]

Y:

Sy also thinks that the lows for the year are ahead of us.

A pirate walked into a bar ...

... and the bartender said, "Hey, I haven't seen you in a while. What
happened? You look terrible."

"What do you mean?" said the pirate, "I feel fine."

"What about the wooden leg? You didn't have that before."

"Well," said the pirate, "We were in a battle, and I got hit with a
cannon ball, but I'm fine now."

The bartender replied, "Well, OK, but what about that hook? What
happened to your hand?"

The pirate explained, "We were in another battle. I boarded a ship and
got into a sword fight. My hand was cut off. I got fitted with a hook
but I'm fine, really."

"What about that eye patch?"

"Oh," said the pirate, "One day we were at sea, and a flock of birds
flew over. I looked up, and one of them pooped in my eye."

"You're kidding," said the bartender. "You couldn't lose an eye just
from bird poop."

"It was my first day with the hook."

H

[Mamma Boom Boom]

According to WAVE action, today was quite bullish.

Neo-Mamma

[Michael]

Investor's Intelligence Sentiment came out today and Bulls are down to levels last seen back on July 14th, at 33.3%

http://www.schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx

[yelnick]

Hock, good thing for the pirate a pretty mermaid didn't pop up!

[Bird]

Maybe so Neo-Ma. But the 3:45 top on the 5 minute was harmonically locked in. It absolutely can go higher, til the next juncture, or the next. But the market is allowed to reverse course right here if it wants to.

[Daniel - Taz]

"According to WAVE action, today was quite bullish."

In terms of NEoWave, the S&P500 had to take out 1065 today to confirm the idea a bottom may be in.

Now it was a decent move up, but at a minimum we must retest the lows if not move to lower lows before we can go higher.

Banks and SOX are at new lows here.

[Bird]

Taz, I kindof like the BKX low. You see any reason why it could go up from here? At least on 60 Min?

[DG]

Looking at the Daily chart of the decline from 1130, today's rally was the "largest and fastest" one-day rally, which is nice, but hardly says anything even about tomorrow.

While the "non-trending" market could come to an end at any moment, the way to trade this market for the past 3 months now is to assume that anything that looks like the beginning of a trend is actually the end of a shorter-term trend.

[Daniel - Taz]

Hey Bird

The BKX and the SOX are the conundrum for me.

I am actually getting very bulled up here (I still think we need one more low in stocks). here in OZ, the deline has been too slow, the internals are neutral to bullish, small caps massievly outperforming. I see a very similar picture on the global front.

I have been doubting Neely but I am getting ready to buy.

Not sure what to amke of the BKX. Perhaps it points to the fact that this last rally is the final phase of Wave-B?

Taz

[Chartanalyst]

S&P 500 analysis after closing bell
http://niftychartsandpatterns.blogspot.com/2010/08/s-500-analysis-after-closing-bell_26.html

[JT]

"But the 3:45 top on the 5 minute was harmonically locked in. It absolutely can go higher, til the next juncture, or the next. But the market is allowed to reverse course right here if it wants to."

In other words . . . It could go UP, but it could go DOWN.

:)

[trendlines]

Hi Yelnick, agree with the seasonal pattern thesis this year.

MSCI Emerging Markets Index looks like it has completed a B wave up, and is probably setup for an impulsive C decline over the next couple of months. Strong support in the 900-910 area, a failure of which will open the door to 825-830 region, to end the correction

On a related note, Hang Seng Index (HSI) has broken its short-term uptrendline and may be headed lower to the 19800 region initially. Further supports at 19400 and 19000. In the very short-term, a rebound is possible to re-test the trendline break.

http://trendlines618.blogspot.com/2010/08/msci-emerging-markets-trendline-break.html

[Michael]

The Hindenburg Omen has a roughly 25% accuracy rate in predicting big market upheaval since 1987. In other words, it is just as worthless as Arch Crawford's "Cardinal Climax" and the "Death Cross".

And yet bloggers continue to obsess over such bearish blather . . . Could it be because it FITS their bearish bias???

[The Trend]

Isn't anyone here willing to be my friend?

[Hockthefarm]

Y:

Yes indeed. Shiver me timber and all that.

Will be interesting to see if tonights STU prediction on this bounce pans out.

Hock

[The Trading Range]

Isn't anyone here willing to be my friend?

The smart ones know I'm the one you want to be friends with right now.

[Bird]

JT, Exactly! Well not exactly. The difference to me is that sometimes it can only go down. Or up. Have you noticed that sometimes I stand up and say it has to go lower or higher before its done? Sometimes a high or a low is so not harmonic that the odds are really stacked against a definitive reversal. I want to trade against that.

[Hockthefarm]

Interesting take from Tony Caldaro:

"Currently the decline can be counted as an ABC zigzag into todays SPX 1040 low, with both waves A and C equalling 60 points. There is another positive RSI divergence on the hourly charts and an oversold condition on the daily charts. If this market can clear the 1058 pivot it could get something going to the upside again. This pivot is currently acting as resisitance. If the market is ending this pullback now a sharp rally should follow to confirm. If not, we may be in for a choppy downsloping decline into Oct10 and the SPX 944 pivot. Best to your trading!"

Seems Tony thinks the market could go up or down as well. Imagine that.

Hock

[Whitebear]

How about the A/D working for you, Michael?

[yelnick]

Hock, I read Tony's stuff daily. I have commented less on him since he came up with a bullish count since I find his five wave count since mar9 2009 flawed. His leadup to the zigzag count repeats the flaw in this way: he counts the wave up from Jul2 as five waves, but has to deal with the overlap between waves 2 and 4. EWI uses the ED to deal with it. Tony makes what everyone else counts as wave 4 into an inside wave 4 of wave 3 up; then his outside wave 4 comes after my high of Aug4 (which he has the end of wave 3). His inside 4 is larger than the outside 4. Wrong look. 

His zigzag down however looks reasonable, and has the same 5-3-5 pattern as an impulse. Under normal rules for an impulse, one of the three legs needs to extend, and so far both 1 and 3 went 60 pts, which means neither extended. Maybe wave 5 will extend, but normally 3 extends. Since an extended wave goes at least 1.6x the other waves, we would anticipate that 3 would 100 pts, breaking the 1010 low in July and ending right below 1000. 

Let's play this out: 

(1) say we are in a minor wave (iv) of 3 with (v) to go. A (iv) would normally go back 38% - 50%, which it already did today, so we could just start down again tomorrow; or might continue back to 1070. In order for 3 to reach 100 pts, the final wave (v) would have to go 60 pts. This makes (iii) and (v) internal waves of 3 equal, which is not a normal pattern. So odds are low on this scenario.

(2) say we just ended minor wave (i) of 3. This is the STU view. Then the rally today is wave (ii), and it would normally go 50-62%, or back to 1070 - 1078. The wave (iii) that follows would normally extend inside of wave 3, so by itself should go 100 pts. This would drive us below 1000, say down to 974, and would be followed by minor (iv) of around 38% or back up to 1011, right at the prior low of Jul2. Then the final (v) would normally be the same as (i), which went a small amount. 

Hence I would say odds favor a bounce tomorrow up to 1070. At that point we wouldn't know if this is a Tony zigzag, a minor wave Iiv) or a minor wave (ii). It is this ambiguity in wave theory that makes me look closely at Fractal Finance. Under FF, we would wait for either:
- a plateau to form to indicate a pending change of trend
- a sharp V shaped bounce off a bottom to show a bifurcation back up - but it has to breach out of the prior interim top at 1100

Hence if we bounce but don't go flying back up over 1100, we are still in a downtrend and have to wait for a plateau before worrying abut changing positions. 

[yelnick]

trendlines, thanks for continuing to post on the HK and Shanghai markets. I wonder if both them have bottomed for this season and are on the uptick, in effect four months ahead of US markets (expected bounce in Nov).

[Brad]

Trading Range said:
The smart ones know I'm the one you want to be friends with right now.

At any time, there is about a 75% chance this is true.

[Perigee]

The Hindenburg Omen has a roughly 25% accuracy rate in predicting big market upheaval since 1987. In other words, it is just as worthless as Arch Crawford's "Cardinal Climax" and the "Death Cross".

And yet bloggers continue to obsess over such bearish blather . . . Could it be because it FITS their bearish bias???

Posted by: Michael | Wednesday, August 25, 2010 at 06:10 PM

Or could it be you post your pompous nonsense because you it FITS your bullish bias? The Hindenburg Omen has the same predictive power as the A/D line - you know Michael, the one you recently cited as beinbg the be all end all indicator that you and your mate JT used to pronounce at the end of July the SURGE into September.

A lot of amateurs such as yourself (sorry - i am so trying to sound like you) use the A/D line but can i suggest that something that may help your future prognostications is using the common stock a/d line - if you actually knew the difference between the two you would understand why using operating comapnies may stand you in better stead than the old A/D line.

Also, I, and no doubt at least 95% of the bloggers here would like to hear your response to Whitebears question: How about the A/D working for you, Michael?

Answer that in an intelligent and coherent manner and i may change my view that you are nothing more than a little man with an overinflated ego who wishes he was something he isn't.

[trendlines]

Hi Yelnick, Shanghai has bottomed for the medium-term in my view, ahead of world markets. Can't be too sure about Hang Seng Index, as it's a volatile hybrid between china and developed markets. Overall, i believe most emerging markets have at least one more wave up into next year, before any serious damage.

[The Trading Range]

Trading Range said:
The smart ones know I'm the one you want to be friends with right now.

At any time, there is about a 75% chance this is true.

Posted by: Brad | Wednesday, August 25, 2010 at 11:44 PM

"A trading range isn't strange" is my motto.

[Hank Wernicki]

Thursday 7:21 am EDT

I'll post today's fractal after the report at 8:30 am today

[Chartanalyst]

Dow Jones futures before opening bell
http://niftychartsandpatterns.blogspot.com/2010/08/dow-jones-futures-before-opening-bell_26.html

[Mamma Boom Boom]

>Answer that in an intelligent and coherent manner and i may change my view that you are nothing more than a little man with an overinflated ego who wishes he was something he isn't.

Posted by: Perigee | Thursday, August 26, 2010 at 12:51 AM<

I'll drink to that!

[Hockthefarm]

Thanks Y:

European Squawk Box usually trot out a TA guy or 2 each night on CNBC. I've been watching while on vacation. Most it seems are pointing to 8200 -8700 on the Dow and 950 on the spx. We shall see.

Hock

[Edwin]

Donchain said "Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move."

We all have to wait a bit longer-:).

[MT]

Why not a running triangle. 05/25 = A.
B is still unfolding into an abcde running triangle and abcde are subdivided into 1-2-3 (zigzags)
Yesterday we saw bottom of d and e is underway to complete B. The whole pattern from 05/25 is corrective.

06/21:a 07/01:b 08/09:c 08/25:d

If we go under d this week, then 08/09 was top of B, 08/25 is 1 and 2 is unfolding. So far I can analyse it, an ABC since april is still running.

I can not agree that we already saw the bottom of this ABC correction. But I also don't think it's going below the 2009 march bottom. 940 could be it.

[Michael]

"if you actually knew the difference between the two you would understand why using operating comapnies may stand you in better stead than the old A/D line." - Perigree

Duh . . . the difference between closed end funds, preferreds, and non-operating companies is well known with regards to the NYSE A/D line. That is why I use the cumulative A/D line on the S&P 500.

Should a trader wish to continue to use the NYSE A/D line, they can do so via Lowry Research or Ned Davis Research as they calculate the index without the "noise" of non-operating companies.

Not sure why you would think that someone whose been trading for 30 years would be unaware of this distinction.

Perhaps it is YOU that is the one with the grandiose sense of self and pompous attitude.

[Michael]

"Also, I, and no doubt at least 95% of the bloggers here would like to hear your response to Whitebears question: How about the A/D working for you, Michael?" - Perigree

The A/D line has been working quite well for me, thank you.

But then again, it is merely one part of the technical methodology that I use when it comes to trading the coal, iron ore, copper, steel, and mining sector names that I focus on.

Do you trade full-time my friend?
How many shares or contracts do you trade per week? Per month?

On average, what percentage of your risk capital is at risk on a daily and weekly basis?

TIA

[Hank Wernicki]

The fractal chart will be posted on the Home Page Yelnick

Hank

[Michael]

Exact Sciences (EXAS) now starting the next leg up with the major catalyst coming on Oct. 29th at the AACC conference in Philadelphia when they present their validation results.

[nspolar]

Hank, fracs for free.\

http://www.apartofny.com/wp-content/uploads/2010/08/apart-frac1.png

ns

[Thigh Master]

The company is pumping the stock so they can sell up to $150M shares, not good for a $176M stock like EXAS.

[Michael]

"The company is pumping the stock so they can sell up to $150M shares, not good for a $176M stock like EXAS."

You have no idea what you are talking about.

[Mamma Boom Boom]

Come on, Hankelberry, you can say it, your a big strong boy. What's your prediction?

I say we're building a bottom, right here at 1040.

Neo-Mamma

[vipul garg]

mamma boom boom,
i hope u recall the exchange : market turns from 1134.

i have a feeling that head n shoulders is the formation most are hoping to come true on spx

[Trader123]

AII sentiment is at only 20.7% Bulls, the lowest since March of 2009.

Major Low coming soon!

[Michael]

Vipul,

Why is EXAS +6.7% today when the Dow Jones is down 74 points???

Look at the chart my friend.

LOL!

[nspolar]

The quote of the day by none other than Tiger Woods,

"It feels good to be able to control my ball all day like this.".

ns

[vipul garg]

Michael,
simply because exas is not in dow.!
actually,
havent seen the chart in long time .

[twitter.com/Frac_Man]

nspolar, again that was posted last year

Best Wishes

Good Luck

Hank

[Daniel - Taz]

Still looking to get bulled up here but looks like we need at least a few more % on the downside first to set up a bear trap.

Re Neely while I am still open to the idea of a flat I don't think it will be a failed flat (if it is by the barest of margins).

And in terms of time. not so sure either with Neely looking for a low next week of thereabouts. If we can drop a few more % in a day or two it should create enough internal damage to warrant another price low after the customary bounce. Not sure of this can be done all inside a week.

[Hockthefarm]

Did anyone catch Alan Sinia from Jackson Hole on Pim Fox tonight?

He is saying that current projections for Q3 gdp growth are 0.3 percent. He added that a projection like that really implies no growth at all.

Expect the bandaids to be flying from Uncle Ben. Let's hope his chopper flies over Colorado on his way home.

Hock

[Pat Riley Operator #136]

T Theory Dude supposedly has extended his major T that was due to expire today into next week. The Dude is the best timing tool on the planet.

............Yelnick, an interesting article on Jim Miekkla, inventor of the Hindenburg Omen, in the Wall Street Journal. The Wall Street establishment bears, Jeremy Siegel and Barry Rithholz visously attacked the HO in the article. Makes me want to root for Miekkla. Miekkla also indicated that a cluster of observations, (3 so far), make the bearish outcome ever more likely.

I was looking for a big down move into this date but a lot of it had to with Larry P.'s astro-aspects for the last two days plus a major emphasis on fading T Theory Guru's major longtime high day of August 26. But it looks like the Tman is joining the multitude of other gurus calling for a rally into the end of August and beyond.

[Hank Wernicki]

vipul, I'm a day trader <<<<<<<<,,,,

I have no ideal about bottoms or tops

I leave that to the gurus

Hank

[yelnick]

Pat Riley, I find the HO interesting but suspect. The WSJ said it was only 25% predictive, which Michael or JT jumped over to mock it. When you add McHugh's embellishments (2 HOs, etc) it becomes 77% predictive of at least a 5% drop. I would say, however, that a 10% or greater drop is required to make people feel "crash," and for that it is around 50% predictive (McHugh's data begins at 8%, and for that it is 55% predictive). I know no other indicator as predicative of a 10% or greater drop, other than I suppose the day after a first deep drop.

What makes the HO suspect is how it is constructed, using a backwards fit to data. I gather that Miekkle built it a bit differently, and later analysts did the backwards fit.

Fractal Finance may give some guidance if someone (Hank? Hank?) can take a look at HO events and tie it to fractal structures. I would conjecture that HOs occur in the middle- to end- of an extended plateau, the moment of maximum entropy. The higher the entropy (calculated as a huge divergence of extreme positions) the higher the odds of the subsequent drop - or rise. We have been in an extended plateau since May25 (at one degree) and back to Nov 2009 (at a higher degree).