Nasdaq is About to Enter its Worst Quarter

The Nasdaq Composite is about to enter what is historically the worst quarter of the 4-year Presidential cycle. It’s been well documented that Midterm Election years normally bring the worst returns for investors, but more specifically in the third quarter of midterm years the market really struggles. The good news, however, is that once this quarter is over, the best back-to-back quarters of the 4-year cycle begins: Q4 Midterm through Q1 Pre-election.

Here is the data from the Stock Traders Almanac showing the average return for each quarter in the Presidential Cycle going back to 1971. We are heading into what is by far and away the worst quarter for the Nasdaq Composite with an average loss of -5.2%:

6-17-14 nas comp seasonal

Seasonality is just one tool that we have as technicians. I find it just as useful as other tools such as momentum and sentiment, but only as a supplement to price, which is naturally the most important thing. When looking at US Equities, it’s nice to know how the market tends to behave during different periods of the cycle.

We are entering what is historically a slow period for the Nasdaq. But if you look at the data for the Dow Jones Industrial Average, for example, you can take it all the way back to 1949 and the average return for the third quarter of midterm years is also negative (-0.5%). The good news is that a very positive seasonal period begins this October and lasts about 6 months.

So stay tuned…


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Stock Traders Almanac 2014