Tepid Summer Rallies Precede Above Average Slumps By: Almanac Trader | July 17, 2018
It’s usually about this time of the year, when trading volumes begin to slump and markets meander that we begin to hear talk of the infamous “Summer Rally” featured on page 70 of the Stock Trader’s Almanac 2018. Long story, short, the elusive “Summer Rally” is the weakest seasonal rally of them all.
So we took a look at the current Summer Rally and found it to be rather weak so far, up only 5% from the Spring low on May 2, and that does not portend so well for the Summer and Fall Corrections. We lined up the Summer Rallies ranked from weakest to strongest since 1964. Over the past 54 years prior to this year DJIA has rallied and average of 9.0% from its May/June low until its Q3 high. The Fall Rally averages 11.0% and the Summer and Fall Corrections average a loss of just under 9% for a net average gain of a few percentage points over the summer and fall.
However, as shown in the table below, when the Summer Rally is below the 54-year 9.0% average, the summer and fall correction tend to be bit steeper, -10.7% and -9.5%, respectively. It gets worse as the Summer Rally numbers dwindle. So, if the market does not get excited about something soon, we may be looking at a summer selloff that could be a bit deeper than usual.
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