for many markets, but as ever, knowing which markets to target is the toughest decision any trader has to make.
If you watched the
pre-election video I posted on October 17th, you’ll know that stock markets
have behaved exactly as expected, but they weren’t the only ones. The US dollar, a big benefactor around elections, also performed as expected. The key question now is, where do we go from here and
which markets should you be looking at?
It goes without saying
Bitcoin should be on your buy list but to be honest, if it’s not on your buy list already then crypto just isn’t for you. Thankfully however, outside of crypto the list of
potential opportunities is still extensive, with our seasonal platform highlighting dozens of markets with a
strong track record at this time of year. Keep reading to find out my top 6 markets to keep a very close eye on.
S&P 500 seasonal performance over last 20 years
Starting where I left off in the election video, the S&P 500 followed the election pattern perfectly, but should we be expecting more? As we can see from the 20-year seasonal chart below, the answer to that question is a resounding, yes. Over the last 20 years, the S&P 500 has finished the year strongly in 80% of those years. That’s 16 out of 20, a fantastic strike rate.
What’s even better is the fact we can use our
seasonal software to analyse the
4 years the S&P 500 performed badly, and by doing this we can see current price action (yellow line on seasonal chart below) is not showing any correlation with the price movement of those years (blue line in seasonal chart below). So, while it’s not impossible the S&P 500 could end the year badly,
history would suggest it’s much less likely.
Looking at the 20-year seasonal chart (top) more closely, you will see that the
start date for this strong performance is November 20th, and a quick look at the daily price chart for the S&P 500 and you will see price made a low on November 19th and is already moving higher. As a result, we traders have been presented with some great swing trade and intra-day long entries already,
but with an 80% success rate and 19% annualized return over the period,
we should see many more opportunities.
100% success rate seasonal trade.
Another index that should be high on your buy list if the FTSE 100. The UK index
actually historically outperforms its US counterpart during this period, recording a 21% annualized return compared to the S&P’s 19% from now until year end. Historically a low is made around November 20th, we have already seen an acceleration to the upside over the last few days since that date, so it has started the period strongly.
However, digging deeper into the stats for the FTSE, you will find that the seasonal sweet spot for this market is December 18th to January 3rd. This seasonal pattern has been
successful 100% of the time over the last 20 years, 20 WINNERS IN A ROW, staggering. I don’t recommend waiting until then however, If you can find a long entry into this market in the coming days, I'd like to ride it for as long as possible, and hopefully be positioned for the late December period as well.
Within both the S&P 500 and FTSE 100 there are many great seasonal stocks you could use to capitalise on this period,
jump on to the seasonal platform for yourself and pick your favorites, but one I want to highlight here is Blackrock. In our top 10 of the strongest seasonally correlated markets across all assets, this market is already performing well and is ideally positioned for more. From the Blackrock seasonal chart below, we can see that from October 1st to year-end,
Blackrock has been positive 90% of those years. Only 2008 and 2018 were negative during that time. With its
4th optimum pattern of the year due to start November 21st, and a
5th on December 12th, there should be plenty more opportunities to look out for.
Moving away from equities, Gold is a market I have liked a lot over the last few months, namely because it has been following a predictable path,
showing the way higher since June 26th of this year. It’s not a historical seasonal pattern however, as above, it’s a pattern that can be found using our
True Path seasonal function. This function allows you to look for
hidden seasonal patterns a market might be following, patterns it has only followed on certain years.
Below is an example of this and we can see it has mapped out Golds price movement precisely, particularly in the 2nd half of this year. This Gold seasonal chart suggests a low around November 18th, with a strong December to follow. A move that has seen golds price move higher in 85% of the years it followed its current pattern.
The 5th and final seasonally hot market is a currency, and a currency that isn’t the US dollar at that. It’s a bold call to look for strength in the FX market
outside of the dollar right now but a quick look at our
seasonal performance heatmap will tell you the dollar historically has
one of its weakest months of the year in December, even in election years. On the flip side of that, the Swiss Franc is one of the strongest performers, so
it makes my list of markets I’m looking to buy.
From the
Swiss Franc seasonal chart above, we can see that historically from November 14th to December 31st it has been positive 75% of the time over the last 20 years. The current trend of course does not favor any CHF longs at this point, so we may need to wait until later in the month, or even into December when it enters its seasonal sweet spot. None the less I will be watching very closely for price action to confirm a breakdown of the current trend, to look for Swiss (and JPY) buying opportunities.
Happy trading
Ray Gilmour
Founder & Senior analyst at Markets Made Clear.com