Seasonality is a very powerful thing. In my opinion, ignoring market tendencies during certain times of the year can potentially put you at a disadvantage. At the very least, we try to pay attention to history in order to assist with our risk management. After all, we use every single one of our technical tools to help us do just that – manage risk.
In this case, we’re talking about the seasonal strength in Technology and Small-Cap stocks going into the last week of June. What I find most interesting here is specifically the relative strength that we see in these names as the Dow Industrials and S&P500 usually struggle during this period. My friend Jeff Hirsch has a great post up on the Stock Traders Almanac Blog describing what typically happens in this space to close out the second quarter:
“Historically speaking, the ends of quarters tend to exhibit weakness, as portfolio managers tend to position themselves for the next quarter. The end of June is not much different, but technology shares and small caps appear to offer the best probability of gains from now until the 30th.
Semi-annual Russell index reshuffling may be the driver that pushes NASDAQ and Russell 2000 stocks highest. The last day of the second quarter is a bit of a paradox as “portfolio pumping” has driven the Dow down 15 of the last 21 years while buoying the NASDAQ and Russell 2000 higher in 13 and 14 of those years, respectively.
Over the last five days of June NASDAQ and the Russell 2000 are clear consistent winners the past 25 years while the DJIA and S&P are significantly weaker on average. All the averages did well last year over this end-of-Q2 week, but with the rally from June 4 currently under pressure techs and small caps are set up to beat their larger brethren next week.”
These are some fascinating numbers. Head over to the Stock Traders Almanac to check out the rest of the stats.
Nice job Jeff.
Tags: $IWM $RUT $DJIA $SPX $SPY $ES_F $QQQ $COMPQ