This blog is the first in a series examining the November seasonal patterns of the US stock market. November is the most bullish month for US stocks, it has the greatest percentage of closing the month higher than the open than any other month. The action of the S&P 500 (SPX) in November 2020 is a classic example of a bullish November.
Almost all markets follow seasonal patterns and of course there are divergences from those patterns. When a market moves counter seasonal it could also be a powerful signal. When a market goes down in a normally strong bullish season it may be a sign of a developing bear market.
The daily SPX chart courtesy of Trading View illustrates an example of a November counter seasonal move.
After the SPX made an all-time high in October 2007 it finished the month of November down. This move down in what is normally the most bullish month and after an all-time high was a major bearish signal. This by itself could have alerted both traders and investors that a major trend change was underway. Subsequent to the SPX November 2007 close it went into a sixteen – month bear market falling more than 50%.
The hourly SPX updates the recent price action.
Today 10/26/21 the SPX made another new all-time high with the hourly RSI making a double bearish divergence in the overbought zone. Very near-term the SPX is vulnerable to a short-term drop of at least five trading days.
The most likely SPX Elliott wave count Implies a small correction followed by a rally to another new all-time high.
We need to be prepared for all contingences and the SPX price action in November could be key to determining the long-term trend. If the SPX breaks below the important support made on 10/04/21 during November 2021 it could be a powerful clue of a developing bear market.
On 10/25/21 traders were stopped out on half of a 50% SPX short that was initiated at the SPX open 10/20/21. On 10/26/21 traders were stopped out on the second half of the short position; the total loss was 0.50%.