Technical Tuesdays: History's Mysteries

The following is, in part, an excerpt from this week's "The Effective Investor". Information on the report and related research service can be found via the links at the end of this commentary.

What's an investor to do when two conflicting factors come into play? As the table* to your left illustrates, July has a bullish history on its side. While not exactly a rip roaring performer (the 7th month of the year is the 7th best performing month of the year), it still has a respectable average (+0.87%) and probability of being an up month (53% of the time). However, July just happens to fall within that time period that contains two of the worst performing months of the year (August and September, ranked 10th and 12th, respectively), which is then followed by the very average performing October (ranked 6th) with the worst extreme numbers by far (-21.8%).

Investment Strategy Implications

For investors (as opposed to traders), what happens in July is of minor importance. It's what happens throughout the third quarter that matters quite a bit, as the high probability of a sideways outcome from mid May into the fall will produce one of two major trend impacts: either sideways = the pause that refreshes and a resumption of the bull or, sideways = a topping process from which the bear emerges from hibernation.

Right now, the performance discrepancy between the US equity markets and the rest of the world (see chart* to your left) stands out as an early indicator that the latter will be the result.

*Source: Sam Stovall, S&P Capital IQ; click image to enlarge

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Technical Tuesdays is a service of Blue Marble Research Advisory and illustrates selected elements of market intelligence analysis. Market intelligence analysis - along with fundamental and thematic analyses - form the three-legged stool of the analytical approach employed by Blue Marble Research Advisory.

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