Nov 23/15 – Confusing seasonals

2015-11-23 10am EDT  |  #Bespoke #Northman #stocks #Thanksgiving #US dollar

It’s US Thanksgiving week and this has often been a great period for equities. Bespoke Investments created this great chart that shows the massive gains you would have earned by owning the S&P 500 only during the US Thanksgiving week over the past half a century:

But before you run out and strap on as big an S&P long position as your broker will let you buy, have a good look at the period from 1985 to 2001. During that time, US Thanksgiving week was simply a push. And although the 2008 Thanksgiving week was spectacular (rising from 750 to 890), the performance since then has actually been negative.

And to make matters even more dicey, have a look at this great chart of the S&P 500 from the Northman Trader:

The chart focuses on the run up into option expiry. Yet the action after option expiry is almost just as consistent. Almost every week after opex has been negative. Last Friday was option expiry, so it wouldn’t be surprising if we roll over from here.

Although US Thanksgiving week is typically up, I would not err on blindly following this signal. We are 65 handles off of lows, I don’t think it is time to chase…

If you want a risk on trade…

And if you wanted to take a punt on a “risk on” trade, I would have a look at going short US dollars. I know the Federal Reserve is about to raise interest rates. I know the US dollar is the strongest currency out there. I know about the cleanest shirt in the dirty laundry pile. I know this, but so does everyone else.

Have a look at the massive increase in US dollar speculative long positions on the CME over the past few weeks:

The US dollar has spiked to new highs, but consider the possibility we have hit a “fully baked in” point.

I still think the Federal Reserve will find a way to hike rates in December in the most dovish way possible. It wouldn’t surprise me at all if the US dollar figures this out first.

Over the past month the hedge funds have been caught flat footed by being short too much US equities and not long enough US dollars. I suspect this period of position covering has run its course. From here, I think the trends reverse as the hedgies will once again have zigged when they should have zagged.

Thanks for reading,

Kevin Muir

the MacroTourist