Fasten your seatbelts as the markets are in for a bumpy summer
Most readers will be familiar with the old stock market saying “Sell in May and go away” as research shows that markets do better in the November to April months when compared to the weaker May to October period.
I have followed seasonal trends in financial and commodity markets for some years. Combining seasonal and chart patterns has provided me with excellent results over the years. In many cases I use seasonal patterns as an early warning sign and one such sign is coming up. Whilst I am expecting a bumpy summer with an increase in volatility, I am also expecting a very profitable few months of trading both on the short and long side so don’t let the fact that this is a weaker period put you off. Also, even if the overall market indices are choppy you will still find some excellent shares to trade which seem to be immune to the overall market direction, for example look at the Brazilian market, this still remains my favourite market for 2008. You can spread bet Brazil via the ETF (EZW) and you will find many Brazilian shares are listed on the NYSE.
Before I discuss the summer months let’s look back at trading so far this year. January which is normally a positive month for markets turned out to be very weak. History shows when we have a weak January the odds are high that the rest of the year will be weak or flat at best, so that does not bode well for the rest of the year. On top of this my own studies have given out sell signals on most major indices including the Dow Jones, S&P500 and NASDAQ.
The Dow Jones has produced almost all of its gains during the winter months; the market on average is nearly flat during the summer months and I have looked all the way back to 1896, when this benchmark was created. During the winter months over the 109 years prior to this past winter, the Dow produced an average return (before dividends) of 5.21%. During the summer months, in contrast, the Dow’s average return was 1.89%.
With the winter period just coming to an end this it has definitely not lived up to this historical pattern, however, the Dow actually lost 7.97%, or more than 13 percentage points below the long-term average.
Now some may think as we got off to a bad start in 2008 the summer may hold up better, I hate to burst the bullish belief but my studies show no reason why this summer should be strong however we are currently in a counter trend rally.
April was a positive month and was profitable for me, although bearish for the year I did say that you should expect weeks and months of counter trend rallies and we are now experiencing a strong counter trend rally. This should not be confused with a change in trend. For now we could see the Dow move up to 13,600 and S&P500 up to 1460 at that point profit taking will kick in and a new wave down will commence.
Caution Fertilizer shares can go down as well as up
The recent moves in fertilizer shares are starting to look similar to the DOT COM boom. I was very bullish on Potash Saskatchew, Mosaic, CF Industries and Agrium towards the end of 2007, however since then most of these shares are up 100% and the charts are looking parabolic. Time to cash in and step aside, I would also sell the Market Vectors Agribusiness (Moo) which features many of these fertilizer stocks. I am looking for a sell off of anything from 30 to 50% from the recent highs before we can look at buying these shares again. Potash hit an all time high of $214 on 22/4/08 I would now look for this to come back down to $130 to $150.
These shares are being traded by momentum-driven public with the rosiest possible future in mind. We even had a new IPO Intrepid Potash (IPI) which soared over 40% above its IPO price of $32 which has already been increased from an initial range of $27-$29. This looks like great timing for the sellers cashing out and not so good for the foolish investors buying in, expect these shares to drop back to $29 in the next few months. This reminds me a bit of the Blackstone’s IPO at the height of Private Equity mania last year, people were paying $30 a share only to see them drop to $13, recently they have moved up a bit.
I still think the trend of higher agricultural prices (and higher share prices for related companies) will last for a long time. Potash is an important component in farming and helps to increase crop yields so I am not saying that this is a bad sector, what I am saying is that its overheated and you will see better opportunities to buy.
Vince Stanzione has produced a home study course to teach private investors how to benefit from trading financial Spread Bets and Fixed Odds priced at £347. For more information please visit www.fintrader.net or telephone 01189 47 66 30 (24hrs)
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May 26, 2008What do customers of Vince Stanzione Have to Say Does Making Money from Financial Spread Trading really Work?
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