July is generally the last month of the year for a new stock market high until November/December. You may remember all the July market highs in the 1990's.
On the seasonal chart of SPX since 1949 we see that even in the face of perhaps the strongest down draft in stocks in history, the seasonal did make a weak but lengthy rally from October 2008 into the new year. Following the script, early January was the high, thereafter with a small seasonal rally into February and a dreadful plunge into March.
The March to May rally is the second largest of the year after the great October/November rally to January. When it extends as it is doing this year, the rally normally will top out in July, "normally" being the seasonal chart itself which is an average of direction (not price as such) the past 60 years. From the March 9 intraday low to the June 11 intraday high, this powerful rally of 2009 gained 43.4%. I suspect that SPX will soon make a higher high for the year and then resume the January to October seasonal decline.
I have not been wildly bullish but became somewhat so in April, well after the March low. Since I am primarily interested in income, I don't have a compulsion to be in "generic" index stocks, so I have played it primarily through corporate bonds (LSBDX) plus the stock/bond fund VWINX in some retirement accounts. Rounding out the stock exposure were the oil and gas trusts, gold stocks, and a few closed end bond funds (GGN and GIM still held in a fairly large quantity).
Market sentiment of both the personal opinion and the market opinion types has remained very bearish, and that has supported stocks and led me not to get bearish too soon. I have mentioned several times that the 2CS (five day total of daily CBOE P/C times daily CBOE VXO) has remained too high for a market rally top or a bull market top. (Keep in mind that 2CS is inverted to price.) Major bear market rallies and bull market legs up do not end until the 2CS is well under 100. Many rallies in 2006 produced 2CS readings in the 40's! But most strong bear market rallies, as in 2000-2003, find the 2CS in the 70's.
Friday a week ago at the end of the recent pullback in stocks, the 2CS got as high as 149, so I was estimating that the rally would last much longer when it resumed. However, this past week's rally and especially events surrounding the options expiration resulted in the 2CS falling to 102 on Friday. This is the lowest reading in 2CS since the August 2008 rally. (During the May rally in 2008, 2cs got as low as 72.) In any event I was surprised last evening to see 2CS at 102, down from 149 in a week. It would take a strong next week to drop the 2CS into the 70's but it could happen. It's quite possible that it might not get to the 70's if this is a secondary rally in a continuing bear market.
Next week on the 22nd July is one of the highest tidal swings of the year during a solar eclipse which is a tide-strengthener. Someone reminded me of Steve Puetz's work http://www.internetnews.com/bus-news/print.php/783611 on crash environments in which he demonstrated that many historical crashes occurred in a window of 9 days around a lunar eclipse occurring within six weeks after a solar eclipse. There is a lunar eclipse on August 6th, so the Puetz crash window is in effect from about July 30 to August 8. Puetz always cautioned that lunar eclipses closely follow solar eclipses often but crashes occur rarely, but that crashes rarely occur outside one of these time windows. If not for the work I have put into tide work under the influence of Robert Taylor's important book, Paradigm, I wouldn't give this much heed. Also I want to stress that this is not astrology but instead is the geophysics of solar and lunar gravity effects upon the earth.
The same friend who reminded me of Puetz's work also re-directed me to Didier Sornette's latest paper. Sornette, who is a geophysicist and mathematician turned market and other large event analyst, predicted the 2000 crash and bear market on his model, and is now predicting a crash in the Chinese A shares market (SSEC) in this very same time window. http://arxiv.org/ftp/arxiv/papers/0907/0907.1827.pdf
I should point out that Sornette thought the stock markets would crash again in 2003/2004, and they didn't. But in June 2008 he did predict an approaching top in the crude oil market. On e very simplistic way to grasp his concept, since his mathematics are far beyond my understanding, is that when markets increase at faster than logarithmic rate, they are on dangerous ground. Note on the enlarged chart of the SSEC index that the rate of rise has itself accelerated and that the corrections have become progressively smaller as it rose. We know that markets are not independent in these times, so a decline in the Chinese market, the hottest on earth this year, would doubtless impact all stock markets before long. Sornette does NOT say that markets like these must crash violently, only that they will decline.
For the next two weeks I will be closely watching price and sentiment, of which the 2CS is just one very simple way to gauge it, and which anyone can follow each day with pencil and paper with closing data from: http://www.cboe.com/data/mktstat.aspx
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