By Elliott Wave International
Many investors know that some time periods of the year tend to be more bullish for stocks, like the holiday season. Other times tend to be more bearish, like September and October.
However, seasonal tendencies are just that and don’t mean the stock market will follow the expected script every year.
That said, an investor doesn’t want to dismiss seasonal tendencies, especially when technical factors, such as Elliott wave analysis, align with those tendencies.
Presently, we are entering a seasonally bearish time period, especially when you consider milestone years. Here’s a quote from our Aug. 14 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which offers near-term analysis of key U.S. financial markets:
In 1987 and 2000, the month of August presented a great chance to sell stocks. In 1929, the final high came just a few days into the next month, on September 3. At the 2007 stock market peak, several stock indexes topped a few weeks before August, in mid-July, such as the Dow Jones Composite, the Value Line Composite and the small-cap sector.
Looping back to the statement that one should combine one’s knowledge of seasonal tendencies with Elliott wave analysis, let’s pick out one of those milestone years — 2000 — and see what the Elliott wave pattern for the Dow Industrials looked like at the start of September in that year.
This chart and commentary are from the September 2000 issue of the Elliott Wave Financial Forecast, which published July 28, 2000 (The Elliott Wave Financial Forecast provides big-picture analysis and forecasts for major U.S. financial markets):
Our confidence in the short-term picture is very high, which indicates a down September-October for the blue-chip averages.
The Dow rallied less than 1% into the middle of the next week, then plunged 15% into mid-October.]
Of course, not every milestone stock market year is an exact replica of the previous one.
But, as implied, it’s important to keep an eye on the stock market’s Elliott wave pattern in conjunction with any other indicator.
Frost & Prechter’s book, Elliott Wave Principle: Key to Market Behavior, discusses the value of the Elliott wave model:
The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market’s general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.
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This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: Keep This in Mind About Seasonal Tendencies. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.