Friday, July 7, 2017

Now What?

Looking ahead to July:
  • Last 20 years: July ranks 6th in monthly performance with an average gain of 0.67%
  • Last 20 years: The average daily trend peaks mid-month but manages to make higher lows throughout the month
  • Last 20 years:  The July through September 3-month rolling return ranks dead last with an average loss of -0.50.
  • Since 1950:  July ranks 5th in monthly performance with an average gain of 1.03%
  • Since 1950:  If the S&P is up greater than 8% in first 6 months of the year, July has an average gain of 1.50%.
  • Since 1950:  If the S&P is up greater than 8% in the first 6 months of the year, the S&P has never finished negative for the full year in 24 instances.  The average gain for the full year is 23.43% with and average gain of 7.36% for the rest of the year. 

The stats above suggest the strength will continue and July favors the bulls.  However, it's worth noting that we are about to enter the calendar's worst 3-month rolling period over the last 20 years.  Seasonality sets the table for a potentially difficult August and September.  

An interesting chart that I found over at macro-ops was the relationship between the volatility of the Nasdaq 100 and the VIX.  Below is a ratio chart of that comparison and it's telling us that either the S&P is about to get more volatile or Nasdaq 100 volatility needs to fall as this measure has gotten too extended.

We touched on the Nasdaq 7 month winning streak in our last post and June was able to snap that streak.  Another topic we've referenced in previous posts has been the longevity of the current move without a 5% pullback.  We've now broken the record for the longest period since the 2009 bottom.  The prior record holder happened in 2014 and lasted 157 days.  The current streak sits at 167 days.

The trend obviously still sides with the bulls and the stats suggest a bullish July.  But with a historically weak August and September on the horizon and the current stretch without a 5% correction staring us in the face, there's enough ammo out there to temporarily stall the bulls.  That said, we still think any pullback will be short and shallow and should be used as a buying opportunity. 

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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