Seasonal and Technical Trend Analysis

November 4, 2022No Comments

Today I’m going to talk a little bit about seasonally investing in the fourth quarter of any given year. The reason I’m talking about the subject right now is because in many of the sectors on the list, their seasonal period actually often bleeds well into the first couple of months at least of the new year. So it doesn’t mean that as of December 31st, any of these sectors are out totally of their seasonal period, but they tend to have very strong results on a normal basis in that last quarter.

Now, the second thing is a seasonal tendency is very much like trying to predict the weather. So if we are calling for a snowstorm and it’s October, you might say that you have a greater probability of being correct about making that call for snowfall to happen on a certain day if you’re calling for it in January versus October. Now, it’s not to say that you can’t get snowfall in October. In fact, I’ve personally experienced a couple of snowfalls in October while I was driving up to my cottage, but it doesn’t happen very often, whereas it does happen very often that it snows in Ontario in January. So that’s the idea behind seasonality. It’s not a given, it’s a tendency to be more often right than wrong if you’re going to make a call on any of these sectors. Now, today’s ideas for seasonally strong sectors come from sentimentrader.com and most of you know that I use these guys as a backdrop to get my data for various sentiment indicators such as the put-to-call and all kinds of interesting things. So they also do look at seasonality as one of their many things. They’re not looking at seasonality as in-depth as somebody like say, Brooke Thackray would, Yale Hirsch, well I should say Jeffrey Hirsch now because he has taken over the business from his father of the Stock Trader Almanac or John Vialoux of Equity Clock. All of these people are bigger into seasonality than Sentimentrader, but Sentimentrader lays it out pretty straightforward and easy at times. So there’s the reference I’m using for today’s show.

We’ll start from the beginning, Season Sector Analysis. Here are the favorable seasonal stocks or sectors, I should say, according to sentimentrader.com. And rather than reading them one at a time, I’ll just get right into the list starting from the top with the biotech. Anybody that knows my basics in technical analysis, I believe in the four phases of the market, which are: base, uptrend, top, downtrend, and repeat.

We’re in a base, without a doubt, on the biotech sector. This is an ETF, which I’m not endorsing. Specifically, I am trying to use this as a benchmark for the sector. They’re usually ETFs, but I’m using them as benchmarks. IBB needs to break somewhere around 135 dollars before it’s out of the base. You probably know if you’ve ever taken my technical analysis course, and I suggest that you do take it if you have not taken it yet, that you can trade bases, you can trade from the bottom to the top or you can buy the breakout, which is the safest way.

Now, it’s interesting because this is a head and shoulders looking chart. It hasn’t broken the neck line and then until the neck line is broken, which is around that $135 point, we do not have a confirmed head and shoulder bottom. It’s the possible making of one. But it’s interesting and I think this is a relatively bullish-looking stock that we should definitely keep an eye on, especially on that breakout. And let’s talk about the small caps, the Russell 2000, and the famous IWM ETF and this is definitely in a downtrend. It looks a lot like the S&P 500. It’s kind of getting close to the top of a trend channel. So you’d really need to see that trend channel break. If you saw a break of the last peak and you saw the channel line broken and a move through the 200-day, which I’m going to assume is probably around where the level of $195 or so, then you’d probably have a good case for buying. But until then, I don’t think I would. Now, the only positive that I can see versus the S&P 500, which we’re going to be looking at shortly, is that the last low was no lower than the prior low.

So this is quite possibly a base that the small caps are making and that’s a bullish sign because when the small caps are starting to outperform the broader index, that tells you that there is a little bit more risk coming back into the market and you need a risk on attitude in order for markets to rise. I wouldn’t buy it until it broke out though or you could buy it near the bottom of the base if the market decides to sell off. So talking about the S&P 500, it did make a lower low. So you have a downtrend that is, so far, definitively in place and until this trend channel breaks and until we get a move to the 200-day moving average, and until we get a move to that last peak, which is way up on the SPY, which is the ETF version, somewhere around 430, it’s in a downtrend.

So would I buy the S&P 500? Absolutely not. I would not right now. That doesn’t mean I can’t change my mind though.

Next, we’re going to discuss the material sector. Now, you know, I like the material sector, but still, it’s in a downtrend. So I haven’t bought into it. We did trade it. A lot of you know that I was extremely bullish from 2020 until basically the very beginning of this year in 22. We held lots of materials. We had metals. We had lots of oil and gas. We’re largely out of a lot of this stuff. We still have a little bit of oil and gas, but we are completely out of metals and materials right now with the exception of some fertilizer. We do have a fertilizer stock that is in this category, but it’s a very specific reason for that.

The materials are not in a bullish trend. Just because they’re in a seasonal trend doesn’t mean I’m buying. I am, however, interested in keeping an eye for a breakout just like I am with the S&P 500. Okay, so the next thing we’re going to discuss is energy. Now, you know, I like energy and there are very early signs of it possibly breaking out of this cluster. Now, this is the producer, it’s the XLE. It’s not oil itself. I encourage you to go to my blog because I did a very comprehensive look at energy on a blog recently. It’s got all the lines on the chart for the producers and for the commodity. So I recommend you go to that. But for the time being, I wouldn’t buy when it’s testing a resistance point, which it is right now, but it is my opinion that there’s a pretty good chance of it breaking out and I encourage you to read the blog in order to get all the details on why I think energy might just break out in the first part of next year. In fact, I’m quite convinced it will. It hasn’t happened yet so we haven’t bought in though. I should note that. So industrials. Now really interesting is that the industrials have been outperforming the S&P lately.

That’s because the S&P is about 29 or 28% technology and of course, technology/the NASDAQ has had its head handed to it recently. So what I want to point out here is that this is somewhat similar to a couple of other sectors such as the Russell 2000. And it’s not necessarily a lower low, it’s somewhat more evidence that it was a lower low, but marginally. It was probably more of an equal low meaning that it’s probably consolidating. And really if you look at this, the drop in the industrial sector has been nothing like the S&P 500 or the TSX or even the Russell 2000. So it’s been a pretty okay place to be for investors insofar as controlling your losses, it’s really not that much off of its 2021 highs, like 105 versus 95.

So basically, you know, 10 – 12% or so. I still like the sector. It would be great if it broke around 95 dollars or so. If it could break out then I think you’d have even more evidence for piling into the industrial sector and it’s in season. So it’s definitely something to keep your eye on. Technology has been the dog’s breakfast, lower highs, lower lows. Look at the meager attempt to make a comeback versus even if we go back to the market, it’s had a much bigger leap. It’s much further back to getting closer to its last level of resistance.

So it’s the weak dog of the heap. I am definitely not interested in technology and again, I talk about it on my blogs a lot. Technology stocks tend to be highly leveraged insofar as their balance sheets. So that’s not good in a higher interest rate environment. Okay next thing, consumer staples. I will confess and disclose, I should say, we own XLP. It’s been another good place to be this year. I mean really the peak was somewhere around 78. It’s currently 72 or so. You’ve not even seen a 10% correction in the sector and that depends on where you also bought it as well. We quite like Staples and I think they’ll continue to do okay for at least the balance of the year. Probably get into this level around 75 bucks or so, maybe 76, and I will probably take a look at that point of selling. So healthcare, how can you argue with this? Literally, anybody that bought this sector has been pretty darn close to breaking even this year. It’s only a few bucks off of its high. Right now it is facing a level of resistance at around $132.

If it breaks, that would be bullish, but it may just return to the bottom of its trading range, which would be down here in the low 120’s. I think it looks like a pretty good trade as far as I’m concerned. If it does return to the bottom, I’d be all over this sector somewhere in the low 120’s assuming it holds. Follow your technical rules, again as outlined in my technical analysis course and I continue to suggest you take it if you have not already because we talk about all these rules on how to enter, how to exit, all the different indicators and stuff that I use to refine those entries and exits. You have got to know this stuff. What I’m giving you here is high-level information.

Discretionaries have been hit hard because they’re a lot like the technology sector in that they’re things that you want, not that you need. You buy a couch because you want it, you need toilet paper. Nevertheless, you know, a flat bottom. So again, a better-looking profile than the S&P 500, just much bigger swings, and it’s really not had any degree of the recovery that the S&P 500 itself is having. Again, this is probably because of the industrials and the materials and energy in particular. Some of the things we’ve talked about today. So do I like the sector? I think it’s in a base. I think it’s an interesting sector to look at and it’s close enough to the bottom that if you’re a bull in the market, it probably will rise to the top of this trading range.

If you are concerned that maybe the current rally that we’ve seen in the S&P is a bit of a head fake before you get one last blast down and that could happen. I’ve talked about that. I’m not making any predictions, but that’s a possibility. Then maybe this would not be your favorite sector just cause it’s not showing much comparative relative strength. Okay, so that’s it for today. We’ve talked about the so-called favorable sectors from a seasonal perspective as supplied to me by sentimentrader.com and we’ve looked at their charts and these are a few things you can look for in these sectors for your own potential buys or sales on and in your portfolio. Thanks for watching and we’ll catch you again next week.

If you are enjoying these videos, you can subscribe to receive them in your inbox weekly.

 

Never miss another video!

Get Smart Money Dumb Money videos delivered directly to your inbox.

Recent Posts

oct to nov

Comparing The Summer Rally To The Current Rally

IBB

Seasonal and Technical Trend Analysis

msci chile

Four Potential Trading Opportunites In Global Market

phases

The 4 Phases of the Stock Market

stock markets

David Chapman interview: A lesson in history applied to today’s markets

spx

Near termed timing system suggests rally

Keith's on Demand Technical Analysis course is now available

Scroll to Top