Unless you're new to trading, I'm sure you're familiar with positive seasonality trends. We've all seen the stats. We know that, on average, stocks gain ground during Thanksgiving week. We also know volatility tends to decline, which makes sense considering how many traders cut out after Monday's close and take the rest of the week off. But are you really going to make significant portfolio decisions based on seasonality?
The folks at Schaeffer's Investment Research tell us that over the past 50 years, stocks gained, on average, 0.54% during Thanksgiving week, with 68% of the returns that week being positive. This compares to stocks gaining, on average, 0.16% and positive returns 56% of the time during the other weeks of the year. It's an interesting statistic, but I'm not going to reposition my portfolio based on a single data point.
Suppose you take this seasonality stuff seriously and want to roll the dice. In that case, you can always consider some weekly calls on the SPDR S&P 500 ETF (SPY) because again, according to Schaeffer's Research, the worst day of Thanksgiving week is Monday, and the two best are Wednesday and Friday. With Monday's 0.35% decline on the SPY, luck may blow your way.
I, for one, rely less on seasonality statistics and more on simple technicals. But here's the thing: With the SPY holding above its short and intermediate timeframe moving averages, the 14-period Relative Strength Index (RSI) holding above 50, the volume weighted average price (VWAP) anchored to the Oct. 13 low, and the VWAP anchored to the recent Nov. 3 swing low, the potential for another rally looks pretty good. The caveat, however, is that the 200-day simple moving average (SMA) is less than 3% above Monday's close.
Seasonality aside, the SPY looks bullish in the near term. But with the 200-day SMA just above, I'm not expecting a massive rally.
