Good morning Traders,

Friday’s bounce on very light volume is setting up the potential next weak
day.  The challenge with it being Monday is it’s month end.  Last
Thursday’s action showed just how much damage can be caused by one of the FANG
member stocks having a bad day.  Looking through those stocks, if selling
picks up, they’ll likely drive the Qs down to the 128 level – and that’s just
for starters.

Here’s a view of our seasonal charts to gain perspective on the action in the
month ahead – following our standard priority of stocks, bonds, dollar, gold,
oil, and nat gas.

qqq seasonality


US Dollar Seasonality

gold seasonality

oil seasonality

nat gas seasonality

Conditions are right for a correction – stocks are in a seasonal sideways to
weak period through 10/1 and bonds are also in a window where they show seasonal
strength.  One caveat there is the Fed reducing it’s QE bloated balance
sheet.  They technically have t sell enough but not manufacture a
crash.  We could even see bonds go down, with stocks, driving rates
up.  Do you think the economy is ready for that?  Someone always
has to ruin the party.  And this time it’s the Fed.

Add in that gold is in a seasonal strong period and showing strength and that
further supports weak markets.  Oil is a wild card as inventories dry
up.  Oil prices could melt up for a while as the weak dollar makes oil
cheaper around the globe.  Thus the push into international markets over US

Nat Gas remains difficult to trade.  I’ll do a full review of our
indicators on Nat Gas (it isn’t called the widow maker for nothing) to see if we
can gain some leverage on what’s driving the trade there.  Still looks to
be forming some sort of double bottom and retest of the Feb 2016 lows, which
could make a good trade.

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The stock market follows seasonal patterns. As part of any market timing strategy, you need to understand the forces that act on the market. From ‘go away in May’ to ‘Santa Claus Rally” there are actions that the market takes, year after year that can help keep you positioned correctly into the market. The first 5-7 days of January are also a good indicator on the future of the market.  Also, pension fund rebalancing is significant.  As the market rallies, pension funds have to rebalance (sell stocks) and buy bonds to maintain their target ratio.   Right now, there is an imbalance of bonds to stocks given the rally and stocks will sell off.  2017 also bring some key Euro elections.  And a new US administration.  We’d be a seller of stocks in early 2017!

stock market seasonality

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USO Oil Seasonality