Like any market analysis tool, seasonality is not a crystal ball.
It simply shows you where to look and when. That can raise the odds you’ll make a good trading decision. But it’s just one piece of a much larger puzzle.
I want to clarify this because we’re in a highly headline-driven market. It’s all about the tariffs, the retaliations, the compromises, the dealmaking, and now a little bit the Fed drama. Major policy changes are the name of the game. It’s easy to defy seasonality patterns in a period of great chaos.
I also say this because I want to talk about some interesting seasonal patterns today, and we should keep the previous paragraph in mind while we look at them.
The S&P 500 (SPX) is set for a seasonal surge beginning right about – well, now – before peaking on June 1. Here’s what our Seasonality tool, available through Trade Cycles, shows as I write on April 17:
This chart covers 18 presidential cycles dating back to 1953. It shows that from today (April 21) through the seasonal peak on May 20, the S&P 500 has risen 2.73% on average for 14 of those 18 post-election cycles.
That’s a good sample size, giving us solid odds. But we should note it also covers a largely pre-internet stock market. The market operated differently back then – less quickly, less informed by news, less open to the retail investor.
We need to tighten up our analysis a bit to get to the good stuff. An easy way to do that is to simply look at seasonality for the S&P 500 ETF (SPY), which coincided with the dawn of the Information Age and increased access to everyday investors:
Here, we can see the post-election April-to-May bump is still in place. Not only that, but it’s more pronounced. SPY has gone up 100% of the time from April 21 through June 1 for the past eight election cycles. In that span, it has returned an average of 5.48%.
So we’ve confirmed that, seasonally speaking, markets tend to go up right around now. And that’s a relief.
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But regular readers know we don’t stop there…
It’s great to know that the broader market is due to rebound, but we can optimize our “big idea” to make it work better for us. There’s a simple way to do this: We can drill down into the sectors that make it up and see which one is set to outperform.
This gets us a layer deeper – we keep stacking the odds in our favor. If stocks are going to go up, we want to know which stocks are most likely to join in the party.
By doing that, we find that the top three sectors by win rate for the past 26 years during this period are:
Utilities (XLU) – up 65.4% of the time for an average gain of 1.2%.
Energy (XLE) – up 61.5% of the time for a measly average gain of just 0.04%.
This data is revealing. For the coming period, the best-performing sectors are also some of the best performers year-to-date. All of these sectors either outperformed or at least lost far less than the broad market – with XLU green year-to-date.
But let’s look specifically at the post-election years to see if we can uncover that one winner. For this exercise, we’ll assume you took a trade on the 74th trading day of the year every post-election year in the history of these three sector-specific ETFs (XLU, XLV, and XLE).
The Utilities Select Sector SPDR Fund (XLU):
The Health Care Select Sector SPDR Fund (XLV):
The Energy Select Sector SPDR Fund (XLE):
Now, the winner is clear: Energy has the best post-election year average return (+8.85%) through the coming broadly bullish period.
Consider adding a few energy stocks to your portfolio to take advantage.
Or, to be even more bold, use Predictive Alpha to trade them…
Our newest Predictive Alpha model has arrived, and with it comes not just a more accurate 21-day stock price projection, but also the Primeprojection, which optimizes for the historically best trading window for each stock.
We can use this model to support the energy trade idea. And we can use our Screener software to make the search easy.
I just set up a screen to look for energy stocks with a bullish Predictive Alpha projection coming up in the next 21 days. Here are the settings and the results:
We now have three stocks and projections to look at. And the best of these is Williams Companies (WMB):
The Prime model for WMB is currently 17 days. That would take us through to mid-May, about halfway through the bullish seasonal period.
Historically, WMB has traded higher 67.19% of the time after a 17-day stretch under these conditions. And it hits the projected target price almost 80% of the time. Right now, Predictive Alpha projects WMB will be 3.47% higher over the next 17 days as of April 16.
The 21-day model is solid too, with a directional accuracy rate of 58.59% and a target accuracy of 75%. The target gain for that is 3.87%.
Keep in mind, this projection runs through an earnings report. And those can always throw a wrench in things. But the numbers behind this projection are strong and worth considering for a trade.
How cool is everything we just did?
Not that I’m biased or anything, but you have to admit that everything we just did was really, really cool.
We just used TradeSmith’s software three different ways to come up with a strong trade idea that has solid probabilities of making money. (We’ll keep tabs on WMB to see how this idea performed.)
We used Trade Cycles’ Seasonality software to identify which sectors are set to benefit during post-election years…
We used our Screener to narrow down the energy sector to only the best Predictive Alpha plays…
These are the kinds of things that are possible with TradeSmith’s software.
Especially with the new Predictive Alpha model out. As it continually self-teaches and optimizes for the highest-odds results… the possibilities for market-beating returns just skyrocketed.
If you’re not already enjoying using these tools, I highly encourage you to give them a look.
Let’s peek at last week’s big Quantum Edge Hotlist ideas…
Every Monday here TradeSmith Daily, we take a look at the most recent Quantum Edge Hotlist.
This list contains the top-ranked stocks based on Jason Bodner’s system. These are the stocks growing their earnings, revenue, and profit margins… while also seeing Big Money inflows and positive momentum. It’s all win-win.
The latest names drop later today, but let’s take a gander at last week’s list:
Even with market volatility still in play, the latest Quantum Edge Hotlist shows no shortage of high-conviction names.
We continue to see a vibe shift away from tech and into more defensive plays. Gold miners Alamos Gold (AGI) and Royal Gold (RGLD) lead the list this week, along with pest control company Rollins (ROL) – all tied with a Quantum Score of 84.5 and backed by strong fundamentals and institutional momentum.
Quantum Edge Pro subscribers will receive the latest batch in their inboxes later this afternoon, along with exclusive market analysis from Jason Bodner, the brains behind Quantum Edge.
Hopefully, you’re coming off of a long, restful holiday weekend. Because TradeSmith’s suite of investor tools are ready to help you conquer this market from just about every angle – and it’s only Monday.
