seasonality is one of my key trading tools. I've been using it now for almost 40 years.
My first book was co written about seasonality in 1979. So clearly, I'm a big believer.
You've probably heard the expression Sell in May and go away. That is a way of talking about seasonality. We also know that the market tends to rally in the fourth quarter every year.
But seasonality is not perfect. It does make mistakes. And sometimes those mistakes are more profitable than when seasonality works.
Let's take a look at the current year as an example.
This is a midterm election year. And so seasonality is slightly different than it is during normal years.
One of the things that it does is that it tends to rally in the month of July and August, and then takes another big swan dive into its lows in October as we go into the midterm elections.
So I expected the market to do what it normally does, rally in July and August.
So far this year, the seasonality has worked perfectly, except for the fact that down moves were bigger than normal and up moves were weaker than normal. But of course, you should expect that in a bear market.
Now we have a situation where the rally that's supposed to take place in July and August is not taking place.
But that gives us an opportunity to make more money. Let me explain.
Jack Schwager, author of the excellent Market Wizards books, once told me that a failed signal is a signal. And what we're seeing now is a failed seasonality buy signal, which means that seasonality has failed during this short period of time.
Now, that's spectacular as far as I'm concerned. Because when the support of seasonality is not working, that means that the bear move is going to be much stronger than normal.
So I now look for this market to move lower in a sluggish manner until the end of August, and then totally collapse into September and October.
This failure of seasonality is actually giving me a much better trade opportunity than if the seasonality had actually occurred.
How do we make money from this?
Well, we want to be even more aggressive on the short side. We know that bubbles were created by the Fed in crypto, housing, stocks, and bonds. So all four of those should be in bear markets. And guess what? They all are! Well, maybe housing is not quite in a bear market yet. But all the rest of them are in bear markets.
So our strategy must be to continue to short sell all of those, including homebuilding stocks as a proxy for the housing market.
I've put together a short report outlining three stocks that I believe will make money in this bear market. G
Click here to get the free report.
Good seasonal trading,
Courtney Smith
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