Sunday, June 5, 2016

Quick May Review & Looking Ahead to June

The month of May was a positive one for stocks as the S&P 500 was up just over 1.5% while the NASDAQ lead the way with an impressive 3.62% gain.  And after 5 months, the S&P is now up 2.70% for 2016.

Looking ahead to June, the last month of the 2nd quarter, we took a quick glance at what the month the typically has brought in terms of performance over the years. What does the average June look like?  Data going back to 1950 shows that June:
  •  Is the 3rd worst month of the year
  • Averages a loss of -.05%
  • Only higher 50% of the time
  • Average drawdown from May close is -2.96%
  • Average draw-up from May close is 2.90%
  • The 3-month period of June-August is the 3rd worst from a seasonality standpoint since 1950 for an average gain of 0.28%
In the last 10 years June is ranked the worst month with an average loss of 1.53%.  June-August also ranks as the worst 3-month stretch with an average loss of 0.21%

In the last 20 years this is the average daily fluctuation in the S&P in June.  Volatility really picks up in the second half of the month.

When we throw some filters (some of today's current conditions) on June the numbers continue to suggest weakness.
  1. When the prior month (May) was positive
  2. When the rolling 3-month period was positive
  3. When YTD the S&P is up
  • June is still weaker as it is the 4th worst month but goes from an avg loss of -.05 to a gain of .37% 
  • Higher 57.14% of time
  • Average drawdown from May close is -2.24%
  • Average draw-up from May close is 2.52%
 Current Sentiment: 
  • Bullish sentiment rebounded strongly from last week’s extraordinarily low reading, but still remains well below its historical average. At the same time, neutral sentiment remains at an unusually high level despite falling significantly this week. 
  • Showing extreme greed 
 Lower end of range and term structure still towards lower levels.
  • A/D line at new highs which is encouraging
  • What's interesting is short-term (10 day) and long-term (200 day) the participation rate is also encouraging. However the % of issues trading above their 50-day moving average is showing a clear divergence as the S&P is testing April highs.  

  • New 52-week highs measure is lagging this current move as they peaked out in early April

Steve Deppe continues to point out the extreme tightness in the monthly bollinger band.  This type of correction is usually bullish once the upside is taken out.  Per Sam Stovall, US equity strategist at S&P Global, history points to a huge gain ahead.

Clearly the jobs number from Friday was very weak and we continue to operate in a slower growth environment.   The weak report puts the odds against a raise at the June Fed meeting as it put downward pressure on the dollar and treasury yields which eventually could bode well for the equity markets.  


The weak jobs report on Friday could be used to work off some overbought conditions in the market as we enter a seasonably weaker period while giving some breadth measures a chance to catch up.  With the combination of many investors having a neutral stance on the market, lots of cash on the sidelines, the monthly bollinger band squeeze, and the potential for a weaker dollar, we could have proper conditions for the market to breakout to the upside in the coming months.     


Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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