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.
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