Evaluating Danger is a Key Distinction Between Profitable and Unsuccessful Merchants | Buying and selling Locations with Tom Bowley

This secular bull market advance is operating over everybody trying to get in its method. It is why I all the time say by no means to wager in opposition to one. Making an attempt to quick this kind of bull market is the equal of monetary suicide. I normally have music taking part in within the background whereas I am working and, on Friday, because the inventory market closed, Elton John’s “I am Nonetheless Standing” began taking part in. I believed, “WOW, that is well timed!” EVERYTHING has been thrown at this secular bull market and it is nonetheless standing, “higher than it ever did.”

Resiliency is a key factor of bull market strikes and we have definitely witnessed that. However, bull market or not, we completely ought to decrease our bar of expectations proper now. I’d positively stay totally invested, however simply strive to not develop too bearish once we inevitably enter a interval of consolidation or (gasp!) promoting. The primary half of calendar quarters 1-3 is traditionally MUCH extra bullish than the second half of calendar quarters 1-3. In the course of the present secular bull market that started in 2013, here is the S&P 500 breakdown by annualized returns by calendar quarters 1-3:

• 1st half of calendar quarters 1-3: +18.14%
• 2nd half of calendar quarters 1-3: -3.37%

That is a really massive discrepancy in efficiency and it is calculated over 11+ years of information. We all know what’s been driving our main indices larger. It has been the Magnificent 7 and pals. In a 70-page Seasonality PDF that I’ve provided to everybody on 16 of the biggest market cap corporations, a TON of seasonal data was shared on every. Following the theme of 1st half vs. 2nd half of calendar quarters, let me share with you the annualized returns for each halves for every of those 16 corporations:

1st Half of Calendar Quarters 1-3:

• AAPL: +50.54%
• MSFT: +37.67%
• GOOGL: +50.42%
• AMZN: +51.51%
• NVDA: +75.63%
• META: +56.44%
• TSLA: +62.69%
• AVGO: +18.26%
• COST: +25.50%
• ADBE: +33.82%
• CSCO: +18.85%
• AMD: +72.48%
• NFLX: +47.21%
• INTC: -1.11%
• AMGN: +21.81%
• SBUX: +17.13%

2nd Half of Calendar Quarters 1-3:

• AAPL: +9.52%
• MSFT: +12.35%
• GOOGL: -8.70%
• AMZN: +13.29%
• NVDA: +47.80%
• META: +8.93%
• TSLA: +40.41%
• AVGO: +40.21%
• COST: +9.64%
• ADBE: +20.37%
• CSCO: +2.69%
• AMD: +26.77%
• NFLX: +19.45%
• INTC: +13.98%
• AMGN: +2.52%
• SBUX: -4.05%

Of those 16 shares, solely AVGO and INTC carry out higher throughout the 2nd halves of quarters.

I intentionally ignored This autumn, as a result of this quarter has an extended historical past of seeing appreciable power throughout each halves. However in quarters 1-3, we should always merely acknowledge the historic patterns and you should definitely decrease our expectations, particularly after such a major rally since late-October 2023.

We’re nonetheless seeing a “danger on” market atmosphere, which favors the bulls. If we start to see relative power in additional defensive sectors, that could possibly be the sign to maybe tackle much less danger. Utilizing StockCharts.com’s seasonality software, we are able to evaluate defensive utilities (XLU) vs. ultra-aggressive expertise (XLK) since 2013:

Utilities do not outperform expertise fairly often, but it surely appears to occur considerably incessantly within the third months of calendar quarters. Take a look at March, June, September, and December above. March is the perfect calendar month for XLU outperformance vs. the XLK. However the second months, February, Might, August, and November, favor expertise in a HUGE method!

Now let’s take a look at client staples (XLP, defensive) vs. client discretionary (XLY, aggressive), utilizing the identical seasonality chart since 2013:

Once more, it is the third months of calendar quarters the place defensive areas present some relative power and the second months the place we have seen MASSIVE relative weak point. We have to acknowledge these seasonal patterns to grow to be higher merchants, figuring out when it is acceptable to tackle extra danger…..and when it isn’t.

Primarily based on all of this, it appears quite prudent to me to be a bit extra cautious now. I am under no circumstances saying that our main indices are primed for an enormous fall. As an alternative, I am merely declaring that we’re in a time of the yr when danger does escalate. It is as much as every particular person as to what that may imply in your personal buying and selling and/or investing.

By the way in which, I’m nonetheless providing the “Bowley Pattern”, our seasonal PDF, for FREE. CLICK HERE and declare your copy!

Completely satisfied buying and selling!

Tom