First Day of the Month Trends

Earlier today, we sent out our Chart of the Day highlighting seasonal trends for the month of September. Breaking this down further, below we break down some seasonal trends for the first trading day of September relative to all other months over the last 50 years (since 1972).  During this span, the first trading day of September has been weaker than the first trading day of any other month with the S&P 500 averaging a decline of 0.11%. However, the positivity rate is above 50% and the median performance is a gain of 0.05%, and much of the negativity comes after the index posts a gain in August.

Over the last 50 years, September has averaged a loss of 0.32% (median: -0.07%) on the first trading day of September following gains in August, trading lower 54% of the time. On an average basis, September has been the worst first trading day of the month following gains in the prior month, but when it comes to both median and positivity rates, August is worse. On the other hand, when August resulted in losses for the S&P 500, September has averaged a gain of 0.16% on the first trading day of September, posting gains 59% of the time. Click here to learn more about Bespoke’s premium stock market research service.

The chart below is included to help you visualize the comparative performance of the first trading day in September relative to other months. Perhaps one of the more surprising aspects of this chart is that fact that despite being known as a positive month, positivity rates on the first trading day of December have been weak.  Along with August, it is the only month where the first trading day of the month has been down more often than it has been up regardless of whether the prior month was up or down.

S&P 500 Positivity Rate

10-Day A/D Line Overbought for 15 Days

In an earlier tweet, we pointed out the elevated readings across 10-day advance decline lines in our Sector Snapshot. Not only is the 10-Day A/D line for the S&P 500 approaching one-year highs (as of yesterday’s close), but it has been “overbought” for the last 15 trading days.

S&P 500 A/D Line

Going back to the start of our data in 1990, there have only been eight other times in which the S&P 500’s 10-day A/D line has been overbought for 15 days in a row or more.  The last time such a steak was observed was at the start of 2019 which ended at 22 days. That tied for the March 2016 streak for the longest on record back to 1990. We would also note that other than one streak in the first couple of months of 1991, nearly all of these long streaks with an overbought 10-day A/D line occurred since 2010.  In other words, consistently impressive breadth by this measure has largely been a recent phenomenon.

Consecutive Days Overbought

This is not the only impressive breadth signal we have covered of late. For example, in yesterday’s Chart of the Day we highlighted that more than 90% of S&P 500 stocks were above their 50-DMAs. Prior times when we’ve seen that reading spike above 90% have been followed by strong returns in the months and year ahead.  Looking at the past times in which the 10-day advance decline line has been overbought for 15 days in a row, forward performance of the S&P 500 has not been considerably stronger than the norm.  From that 15th day, the S&P has risen half the time one week out. One and three month returns are more consistently positive but weaker than the norm on a median basis. In the year after the long overbought A/D streaks listed below, though, the S&P was higher 7 of 8 times for an average gain of 11.1%.

S&P 500 Estimates

Below is a chart of the S&P 500 since its 2009 Financial Crisis low.  As shown, most of these overbought A/D line streaks have occurred as the index was recovering from some sort of sell off. Only one of them (in early 2018) came about at the time of a notable peak in the index. Click here to learn more about Bespoke’s premium stock market research service.

S&P 500 Chart

S&P 500 Reaches Extreme Overbought Levels

On Friday, the S&P 500 rallied 1.7% to round off the fourth straight week of gains. Relative to the mid-June lows, the index has rallied 16.7%, a notable move as YTD weakness subsides (at least for now). With Friday’s move, the S&P 500 also closed more than two standard deviations above its 50-day moving average for the first time since 12/29/21, marking the end of a 155-day trading day streak in which the index did not close at ‘extreme’ overbought levels.

A streak of this length had not been reached since 2015, and the longest streak since WWII ended in 2003 (768 trading days). All in all, there have now been 27 streaks since WWII where the S&P 500 went at least six months without registering a close in ‘extreme’ overbought territory.   Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

Extremely Overbought S&P 500

For investors who are long equities, it’s hard not to like the way stocks have performed in recent weeks. However, with the market reaching overbought levels after a sharp rally, fears of a pullback increase as moves of this magnitude may be unsustainable. Historically speaking, median returns following the end of prior streaks without an ‘extreme’ overbought reading that lasted at least six months have, in aggregate, been followed by decent returns. For every time period we looked at (next day, next week, one month, three months, and six months), median returns were positive and better than the historical average for all comparable time periods since WWII. Over the next three months, for example, the S&P 500’s median performance was a gain of 4.4% which is 1.8 percentage points better than the historical average for all six-month periods.  From a historical perspective at least, when equities reach ‘extreme’ overbought levels after a prolonged period without a similar reading, fears of an imminent reversal were typically unwarranted.

S&P 500 After Entering Extreme Overbought Territory

Positivity rates tend to be superior as well, apart from one month forward. Over the next week (which would be through the end of the week in this case), the S&P 500 has performed positively 77% of the time, which is 20 percentage points higher than that of all periods. Over the next three and six months, the positivity rate has been 73%, which is also quite positive.  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.

S&P 500 Positivity Rate

To paint the full picture, the maximum drawdown following these occurrences was in November of 1981, when the S&P 500 fell by 10.8% over the next three months and 11.6% over the following six months. On the flip side, the best performance occurred following the January of 1975 occurrence, when the index went on to gain 14.4% and 17.7% over the next three and six months, respectively. Over the following month, the data has a range of -7.1% to +6.6%.  Click here to start a two-week trial to Bespoke Premium and receive our paid content in real time.

Strongest July in Post-WWII Era

On Friday, the S&P 500 closed over 140 basis points higher on the back of favorable earnings from Apple (AAPL), Amazon (AMZN), Chevron (CVX) and Exxon (XOM). This was the third straight day in which the S&P 500 gained at least one percent, allowing bulls to breathe a sigh of relief after a tough start to the year. These moves came even as a second consecutive quarter of negative real GDP growth was reported and the Fed hikes rates by 75 basis points.

Friday’s move helped the S&P 500 post its best July in the post-WWII era, finishing with a gain of 9.2%. Although the index is still close to 14% off of its early January highs, the market looks more inviting than it did at the beginning of the month, when the YTD declines were above 20%. As investors, we could just give ourselves high fives for the month, but it’s vital to remain forward-looking. Following July gains of 5%+, the S&P 500 has averaged a gain of 0.6% in August (median: +1.4%), performing positively 60 percent of the time. Between the start of August and the end of the calendar year, the index has averaged a gain of 8.0% (median: +10.0%), gaining 80% of the time. Over the following twelve months (starting in August), the index has averaged an impressive gain of 15.6% (median: +15.4%), rallying 87% of the time. Based on past history, bull runs in July tend to bode well for the market for both the rest of the year and over the following twelve months. Click here to learn more about Bespoke’s premium stock market research service.