Don Vialoux, creator of the popular technical analysis website www.dvtechtalk.com recently quoted Brooke Thackray’s Investors Guide. “According to Thackray’s 2012 Investor’s Guide, North American equity markets have a history of moving higher from two market days before the Memorial Day holiday until five market days into June. Average gain per period during the past 40 periods for the S&P 500 Index is 1.1%. The trade has been profitable 66% of the time. Canadian investors receive an extra bonus. The TSX Composite has a history of moving higher on Memorial Day when U.S. equity markets are closed.”
Don & Brooke’s observation of seasonal strength occurring into the first week or so of June coincides nicely with various oversold stock market conditions I noted on my last blog. My upside target for a bounce would be to former support levels on the S&P 500 of around 1350. That’s not a huge upside from here, and given my bigger-picture prognosis of weakness surrounding the end of Operation Twist (discussed here: http://www.valuetrend.ca/?p=1196) I’m looking at any near termed bounce as an opportunity to become more defensive. I would expect that the VIX will pull back as a rally ensues, and I do plan on re-entering the trade (I bought and sold a VIX ETF recently, as discussed on last week’s blog). Look for a potential pullback on the VIX over the coming week or two coinciding with a mild stock market rally. The closer that the VIX gets to its breakout point of 20, the more attractive an entry point becomes. Other defensive moves include raising more cash, buying inverse ETF’s and focusing on defensive stock sectors with positive seasonal cycles (utilities, consumer staples, low beta stocks).