Brace for a February pullback

S&P nearterm

 

Despite the fact that we are still in the “Best six months” period, according to seasonal patterns (November through to April), February has displayed a seasonal tendency to be the bad-boy in this otherwise favorable time period. Brooke Thackray notes in his Investors Guide that February, on average, produces a -0.1% return.

Interestingly, the charts suggest that this tendency may occur again this year. The S&P 500’s daily chart has been flat for the month, which has inspired a divergence in the momentum indicators that I like watching (RSI, Stochastics, MACD). Meanwhile, the US treasury bond has rallied, as I predicted it would back in mid-December (https://www.valuetrend.ca/?p=2626) . Note the rising momentum studies on the US 20-year note (TLT) chart below, along with the rising comparative relative strength of TLT vs. the S&P 500. I’ve circled that rising performance line on the chart. Traders may be moving out of stocks and into bonds for a relative performance play, given the technical evidence displayed on these two markets.

TLT SHORT

For long termed and mid termed traders like myself, a February pullback is nothing to be concerned with. The trend remains decidedly bullish for the US market, and we are still in the favorable period of the year. Any retracement seen in February could provide an entry point for new capital. March is often a strong month for stocks (Thackray says its produced an average gain of 1.2%). New money flowing into the market via RRSP and 401k contributions help bump things along. I continue to remain long this market, and look to buy on the dips.

 

Upcoming events with Keith Richards

BNN television MarketCall: Tuesday January 28th, 6:00pm EST. Phone in with your questions on technical analysis during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]

Oakville public library: Thursday January 30th, 7:00pm EST. Free admittance, Keith will discuss technical analysis strategies from his book Sideways

Orangeville public library: Tuesday February 4th, 7:00pm EST. Free admittance, Keith will discuss technical analysis strategies from his book Sideways

 

8 Comments

  • Hey Keith,

    Great analysis as always! Very much appreciate you taking the time to write this blog.

    As per your note above, you are looking for a near termed pull back. Can you advise what level you see support at on both the TSX and S&P 500?

    See you in Orangeville on Feb 4!
    Daniel

    Reply
    • Hi Daniel
      Looks like the pullback is happening early!
      S&P500 has first support at 1800. I’d expect it to hold. TSX first support is 13,600 area.
      Things might overshoot those targets, but I’d expect an overshoot to be short lived.

      Reply
  • That bounce as you mentioned Keith should happen right around this level and probably Monday. All the shorter time frames (2 hour and 4 hour ) charts are signalling oversold and the long term uptrend is still intact.

    Reply
  • Hi Keith

    Just wondering if there would be a possibility of you running a tactical investment fund like Larry Berman does.

    I’m sure that there would be a lot of interest.

    Reply

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