Stock market returns tend to be much better historically during uptrends.
I know — obvious, right? You should see the looks I get when I say that out loud. Or, better yet, check the replies on Twitter when I post it. The outrage is hilarious.
But here’s the thing: It’s just the truth.
Stocks perform better when they’re trending higher than when they’re trending lower. Always have. Always will. Why? Because asset prices trend.
That’s why Technical Analysis works — and it’s why we spend so much time hunting for those trends. They exist. They persist.
And if we do our jobs as traders and investors, we profit from them.
Seasonality
I’ve noticed some people seem shocked that August was so strong for stocks.
“But August is one of the worst months for equities!” they shout.
Yes, on average. But averages can be misleading. If I stand with one foot in ice water and the other in boiling water, on average I’m “comfortable.” You get the point.
Here’s what actually matters: When the S&P 500 enters August above its 200-day moving average, returns are historically much more positive.
The 200-day is a simple line in the sand. If price is above it, the index is likely not in a downtrend. And when markets aren’t trending lower, returns tend to be much stronger.
Take September, for example. It has the worst track record of any month — Wall Street even nicknamed it “the Portfolio Killer.”
But, since 1950, when the S&P 500 starts September above its 200-day, the average return flips positive.
When it starts the month below its 200-day? The average return is a 3% loss, with only a 30% win rate.
That’s a big difference.
And here’s the kicker: This week the S&P 500 is hitting fresh all-time highs, heading into September on solid footing — exactly the setup where history says strength tends to persist.
The S&P 500 started September above its 200-day moving average — and history is clear: That’s when September tends to be positive.
So, when you hear someone say “seasonality” is a reason to sell stocks here, you can safely ignore them. Either they haven’t done the work, or they’re lying to you.
If you’re going to sell, you’d better have a better reason than “it’s September.” Fighting healthy uptrends with lazy arguments is no way to go through life.
Stocks do best when they’re trending higher. That’s not opinion — that’s history.
And right now, the trend is up. It would be irresponsible not to respect it.
This Week in Everybody’s Wrong
On Monday, we read about how the story is disconnected from the data all over the world.
Headlines scream disaster, crowds lean the wrong way…
And charts will quietly point to opportunity.
On Tuesday, we looked at golden opportunities – literally with a silver lining.
Precious metals are hitting new highs, and new highs confirm uptrends.
The breakouts are real, and the opportunities are compounding.
On Wednesday, we explored the meaning of the Dow Jones Transportation Average still being below its prior-cycle high.
The tl;dr version is, it’s bullish.
On Thursday, we addressed a difficult reality about economists, analysts, and journalists.
They’re lying to you about stocks.
Remember, nobody knows anything, and price is the only truth.
On Friday, we checked in on the major U.S. stock market indexes and investor sentiment.
Papa Dow, the S&P 500, the Nasdaq, the NYSE Composite — and plenty of other indexes around the world — are pushing to fresh all-time highs.
You’d think investor sentiment would be improving…
On Saturday, we welcomed back “Chief Cowboy” Sam Gatlin, “a kid from Kansas. Born and raised in a small town where farming drives the local economy.”
Also, did you know hedgers are piling into record short cattle positions as prices go parabolic?
Here’s Sam on the Homestead Act, family, and futures contracts.
Have a great Sunday.
We’ll see you Monday morning…
Stay sharp,
JC Parets, CMT
Founder, TrendLabs