November 1 - April 30: The US Stock Market Most Often Finishes The Period Higher

Research published by Yale Hirsch in the “Trader’s Almanac” shows that the market year is broken into two six-month seasonality periods. The period from May 1 through October 31 is seasonally unfavorable, and the market most often finishes lower than it was at the beginning of the period. From November 1 through April 30 seasonality is favorable, and the market most often finishes the period higher. While the statistical average results for these two periods are quite compelling, trying to ride the market in real-time in hopes of capturing these results is not always as easy as it sounds.

Below is a chart of the “unfavorable” six-month period that just ended. Note that the market finished much higher instead of lower as expected.

The next chart covers the two prior periods. Note that during the unfavorable period the market ended lower as expected, but for the favorable period the market also ended lower because, favorable seasonality or not, a severe bear market was in progress. Regardless of how the market performs on average, every year is different and presents its own challenges, and there is no guarantee that any given period will conform to the average.

It appears that the market has finally begun a correction. On Wednesday prices broke down through the ascending wedge pattern we have been watching for some time. On Thursday severely oversold short-term indicators resulted in a wicked snapback rally that made us wonder if the market was headed for another new high; however, prices reversed again on Friday, taking out Thursday’s lows and providing evidence that implies that the correction has more work to do.

I don’t have a downside price target, but, as I mentioned last week, there is a 20-Week Cycle low due at the end of November, and I think the correction will continue until then. If that conclusion is correct, we’ll need to keep an eye on the 20-EMA. If it crosses down through the 50-EMA, a neutral signal will be generated.

Bottom Line:

The S&P 500 (^GSPC) broke down from the ascending wedge pattern, and I have cautiously concluded that a medium-term correction has begun, and that it will continue into a price low around the end of November. This is not an auspicious beginning to the new six-month favorable seasonality period, but there will still be plenty of time to recoup correction losses after the low is in place.

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