** Have you ever noticed that the largest market-moving news headlines happen between September and May? Russia/Ukraine, Abenomics, the European crisis of 2012… it is no coincidence that news with the greatest impact occurrs outside of Summer vacation season.
Market trends happen based on large capital flows, but capital only flows when the keepers of that capital are engaged. In the Summer, investors, politicians, and military leaders are more concerned with planning family vacations, enjoying the weather, and locking in gains they earned over the winter months. Even the President of the United States is on a working vacation this summer touring Europe with his family.
With fewer players at the poker table what we end up with is a wild game of 5 card stud that produce swings and sideways trading which can last for months.. at least until the kids are back at school.
The S&P 500 continues to make new highs, but without any real catalysts to push it over, including headline news (who wants to start a war during Summer vacation?) and large volume orders (Hedge Fund Managers may be watching the flock but are not moving it around while up at the Hamptons) then this is the kind of market we get.
The Real Smart Money already knows where the market is going in September, and they have already placed their bets on the direction. And if the market is not cheap enough for the Real Smart Money to enter or add to their positions, they will bring it down to get a discount. Conversely, if the market is not high enough for the Real Smart Money to exit their positions, they will push it higher.
Until then, the ‘Real Smart Money’ have set all their algorithms on auto pilot to by the dips and sell the rallies, and this is the kind of market we will get until the weather cools down.
Our own algorithms, which identify historical trading patterns that go back months, years (or even decades) gave a clear Buy signal on the S&P 500 Index on May 28th (see chart). Since then the market has rallied 50 points and is threatening to move higher.
To buy at all time highs here and hold would likely return nothing but gut-wrenching volatility as traders see their positions move against them. Come September, when the ‘Real Smart Money’ wants to move back into the market, expect some bearish headlines to start making the news… Inflation, Jobs, Ukraine, Japan, China… Investors dislike uncertainty, and when the investment landscape starts to show uncertainty then investors will flee – It is this moment when the best investment opportunities will present themselves.
In the mean time, it is unlikely that the S&P will get to see much of the 2000 level this summer, if at all. To get it past there would require new money flowing into the market. With IRA/RRSP season behind us and the $billion money managers not willing to buy at a premium, it is highly likely that this summer will show sideways action with the occasional upward and downward extreme.
Our algorithms will continue to discover opportunities during the doldrums, but these will be exceptional circumstances and infrequent. In trading, we must always take what ever high probability opportunities the market gives us, and at this point the opportunities are infrequent.