By Ryan Redfern, CMT, ChFC
1/ Election Season Seasonality
2/ Improving Sector Strength
3/ Healthcare Drama
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1/
Election Season Seasonality
Election Season in the US is already upon us, and I thought it would be worth noting what the S&P500 usually does around (before and after) the big day. This Seasonax chart shows the average movement of the index around the last 3 US presidential elections – 30 days before and 30 days after.
Is that a small sample size? Yes. Yes it is. However, each of those last 3 had vastly different outcomes and markets around election day, so looking at the average of these 3 is surprisingly interesting.
This chart suggests that about 14 days before the election, the S&P500 tends to peak before a short-term sell-off. That puts a possible peak on or around October 22nd. As I said early in the week, it’s not so much a signal but a heads-up. If other factors agree on or around this date, then I’m very interested in either reducing equity exposure or adding inverse funds for a short-term hedge. Always refer back to your trading plan for appropriate action.
But in any case, what is even more interesting is the overwhelmingly positive bias after the election. Something to look forward to if other signals agree.
Courtesy of Seasonax
2/
Improving Sector Strength
Sector DMIs are now showing Positive 10 to Negative 1, up one from yesterday.
On the positive/buyers side, we have 10: (XLB, XLC, XLE, XLF, XLI, XLK, XLP, XLRE, XLU, XLY). These are largely made up of the sectors you would think of as market leaders – Technology, Communication Services, and Consumer Discretionary. And Energy changed sides, strengthening the “bull” case.
On the negative/sellers side, we have 1: (XLV only). “And then there was only one,” and that one weak sector is Healthcare.
Writing for this newsletter had me thinking about other ways to look at this sector list. What if I also look at the sum of the weighting of each sector? Since there is only one on the negative side, today’s is a straightforward calculation.
Positive Sectors weighted: 88.5%
Negative Sectors weighted: 11.5%
Interesting. I’ll be spending more time with this concept in the future.
Courtesy of Optuma
3/
Healthcare Drama
What is wrong with Healthcare (XLV)? All the other sectors of the S&P500 are behaving, so what’s up?
Since the big spike on September 1st the chart is stair-stepping lower with lower highs and lower lows. It even looks like it tried to move into the Blue (Improving) RRG box but quickly failed. I would expect it to possibly make the next step down to a lower low, somewhere around the 148 level if the moves stay symmetrical (noted by the vertical lines).
The white ADX line is still in decline – suggesting there is no clear trend, even with DI- over DI+. Possibility #2 is it just chops sideways, pulled up by the strength from the rest of the market. But I think that’s less likely. If the ADX line does turn upward, then I’ll be watching for which direction the breakout might go.
Courtesy of Optuma
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Originally posted 17th October 2024
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