Seasonality a Tailwind as Technical Indicators Flash Bullish

VT Tyndall North American Fund

Seasonality a Tailwind as Technical Indicators Flash Bullish

November and December are historically good months for equity market performance and the so called ‘Santa Claus rally’ is an often-quoted reason to get long equities at this time of the year. What has got many commentators excited this year, is the set up coming into this seasonally strong period. Specifically, the fact that when the market has been down in August, September and October; November has been positive five out of the five times it’s happened since 1950.

Another factor to consider is the underlying action in the market. What many market technicians look for is improved market breadth to indicate a low or a change of direction. Breadth simply means that more stocks are going up than down, and if this is accompanied by a surge in volume this acts as confirmation that there is a strong bid to the market which is likely to be sustained. One such technical indicator is the Zweig Breadth Thrust, which is a measure of momentum and volume over a ten day period and indicates a market going from very oversold to overbought. This has got observers excited because it is a rare occurrence, having only occurred 16 times since 1950, but as the table shows, has delivered positive performance expectancy 100% of the time.

There are some intriguing dates on this table: The 1974 date denoted the end of the 1973-74 bear market. The 1982 date heralded the 1982 low. The 2009 date was the low of the GFC and the 2019 date followed the -14% drawdown in Q4 2018.

Moreover, this is the second Zweig Breadth Thrust so far in 2023, the last time that happened was 1962, which proved to be a great time for equity market performance.

Whilst these technical indicators are notable, are they truly actionable? The fundamentals decide the fortunes of companies but given the fact that the market is a discounting mechanism and that price leads data, it’s important to be aware of these technical shifts in the market. Both 2022 and 2023 have been difficult markets for many, but if history is any guide, investors should be open to the idea of much better times ahead.

9th November 2023
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Data source: Bloomberg
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