Okay folks, welcome back. We're in the final week of June 2017's ICT mentorship content. This week's lessons are going to be focusing on the ICT stock trading, which is lesson one, seasonals and monthly swings. Okay folks, Dow Jones Industrial Seasonal Tendency, and this is credited to more research.
Steve Moore has the absolute best seasonal tendencies that are made available for active traders. And I'm looking at the overall directional seasonal for just the Dow Jones Industrial Average. Now, you can go crazy and try to look at the NASDAQ and the S&P 500. But the simplest thing for me to do was to simply look at the Dow Jones Industrial. Now, it's a small sample size of 30 stocks, 30 blue chip companies.
some of the biggest companies in the North American continent. So they're publicly traded, and if they're doing very well, generally the S&P is going to be doing very well. And NASDAQ, while it's heavy in tech, it can still be a very good barometer in terms of what the stock market as a whole should be doing.
Now, personally, I believe that the seasonal tendency is very closely mirrored to that of the S&P 500. For S&P 500, I think is a more... accurate depiction of what the stock market is doing. So we'll always refer to what this general basic generic seasonal tendency is implying, but we'll be using it with the S&P 500 also in later lessons.
That way we can filter out the strengths or weaknesses in the averages to bolster either confidence in higher or lower prices. Okay, the first thing I want to bring your attention to is there's... three divisions in the year when it comes to stock trading. And there's a lot of people that try to trade stocks a lot more actively than they should.
A lot of folks try to invest in stocks more actively than they should. And a lot of people think they know something about stocks when they don't. So just this lesson alone will put you in the front of the pack as it relates to equities trading. The first half of the year, there's generally going to be a large or high high magnitude period. That means there's going to be a lot of volatility, but it's going to be directionally driven.
Generally, it's going to be bullish. The second portion of the year I want to talk about is the last quarter of the year, and that's generally and primarily a bullish time of the year as well. I've spoke many times in extensive detail about why the last portion of the calendar year in the U.S. is so strong.
It's because it's... laden with holidays and year-end spending has to come in. So it's going to cause a lot of energy. And you can see there's a very strong contrast to the magnitude and the velocity at which it goes higher in the later portion of the year in contrast to the first portion. So that's the first and the second segments of the calendar year for stocks.
The last and Most critical one you need to understand is this portion in the middle. This whole area right in here that's boxed in, this is what is referred to as low magnitude period. And it begins in May and it ends in October.
So May to October, generally you're going to be seeing a lot less directionally driven markets. Now, it does not mean that you won't have short term directional biases and or. opportunities. It just means that if you're going to be trading, do a lot less leverage. If you're going to be trading options, do a lot less activity.
Don't be so aggressive during these periods of the year. You have all the summer months. You'll have seasonal lulls in spending because a lot of people are looking to spend money in vacations and other things like that.
So there's going to be a lot of cyclical things that take place. and non-cyclical things that take place yearly. The main thing is during these periods or these months, you want to be looking for a range-bound consolidation environment overall. Now, they're individually going to have their respective seasonal tendencies month by month, but you primarily want to focus on being a trader from October to the end of the year and from February to May. All right, Dow Jones Industrial Seasonals.
Okay, we're going to be breaking it down month by month. So seasonal influences per calendar month for the Dow Jones Industrial. January typically is going to be a bearish month.
February is typically going to be a bullish month. March generally is seen as a consolidation month. April typically is a bullish month. May is typically a bearish month. June is a consolidation ending with a bearish tone.
July is bullish into the mid-year high. August is generally seen as a consolidation month. September is split between the first half being bullish and the second half being bearish.
October usually makes the final quarter of the year low. It can happen in September as well during that second half of the month of September. So while it's bearish, it may drop down, make a seasonal low there. Or in October, it could make the low and trade aggressively higher. November is typically a bullish month.
And finally, December is generally a Santa Claus rally bullish month. So here we have the entire calendar year in broad brush terms, generic terms, whether we should be at... expecting higher prices or lower prices. Now, this is being conveyed to you by way of looking at a 20-year average, a 15-year average, and a five-year average. So if you look at the overall consolidations and expansions and when it's trending, when it's not trending, when it's going higher, when it's not going higher, they are very closely correlated in terms of what they're doing, the blue and the red line.
So if we see this, in my opinion, if... It bolsters confidence behind the number crunching of seasonal tendencies, because if it's going to average over the last 20 years to go higher in February, it's going to average that same thing in 15 years of data. It's being reflected in both. So in different time frames of analyzing the data, it speaks volumes to me in terms of consistency.
Now, consistency is not high probability or perfection or panacea beyond end all. Absolutely no risk. It means that probabilities are, historically speaking, and obviously nothing is guaranteed by looking in the past, but if we're going to assume there is a pattern to this and we're going to be using seasonal tendencies, I think this is one that's worth looking into. So breaking down the calendar months as we've done here gives us a pretty strong consensus about what we should be doing each month.
If we're going to be short term or swing trading stocks. Also, we can be looking at it for day trading the S&P. If we're really astute about everything.
And if you look also, we have months where we know that there's going to be far less likely to have an opportunity with high probabilities. And those are March, June, August. Those months typically are going to be. not fruitful in terms of high probability conditions.
Now, I already know some of you that's probably going to hear this. It's done some stock trading or whatever. You're going to say, well, what about this month in August of this year or that year? And there's always going to be some aberration where it just simply doesn't fit the seasonal. And that's OK.
That's fine. There's going to be many times when the months that are suggested here as bullish or bearish won't be that. They'll be the opposite.
It's going to be based largely on the underlying trends or the environments of the marketplace. But because the seasonal tendency is really highlighting the underlying tendency for stocks to be purchased, bought and held, then it's obviously going to show the strongest buy side seasonal tendencies. So while the market is bullish, if we look at the bullish months, those will indicate, in my opinion, the best opportunities to be looking to be swing trading long stocks.
Now. Now, the bearish months, what we'd be looking for is even during strong periods in the last 20 years or so when the stock market's been going higher, if we see that there are typically months in the year, like May generally is a bearish month, and the second half of September is generally a bearish month, those, and January as well being a bearish month, those months, if they are bearish, even in underlying bull markets, they could spell aggressive selling in bear markets. So if we focus on those months when the market's generally going lower or the tide as a whole is moving lower, that could actually become really supercharged short selling months where we can be looking for sellers.
weak stocks or bearish on S&P trading. Okay so we're going to look at a couple case studies here. I'm not going to do the entire calendar year because I want to inspire you to go to bar chart.com and pull up the individual months yourself and you can go back and look at all that data by simply putting in the beginning and the ending dates of each calendar and use them respective delivery contracts. March, June, September, and December contracts.
And you can look at the contract codes from the previous lessons in this month where I actually gave you the delivery contract month codes and how to pull up the year and all that for each symbol. So we're looking at the first one here, and that's going to be seen for the month of February. And we obviously knew, looking at the previous slide, that February generally is a bullish month, seasonally speaking.
So on the chart here on the right-hand side, we're looking at major stock averages. The top chart is going to be the NASDAQ. The middle chart is going to be the E-mini S&P.
And the Dow Jones is seen at the lower end. And I'm using the futures contract just to show the representation of it. It doesn't have to be the futures chart. You can use the cash prices.
It's still going to speak the same thing. But I want you to look at the second and third of February. You can see that the NASDAQ made equal. low while the S&P and the Dow failed to go to that equal low and actually made higher lows.
So that's our criteria that we look for. We want to see strong tendencies to see an unwillingness to go lower. And there's our index S&T that we looked at during S&P trading content. So we see the indices starting to show signs of smart money accumulation. And even later in the month, during the period of the sixth to the eighth trading day.
You can see that the NASDAQ made a higher low, the S&P made a lower low, and the Dow Jones made a slightly higher low. And then we saw another movement higher across the averages. Okay, we're gonna be looking at the next one here, and this is gonna be looking at March.
And you can see here in the shaded area, March generally is a consolidation period. It does have its little whipsaws of higher and lower prices. And if you really want to get aggressive about it, you can see during the second week of March down into the third week of March generally is bearish.
And then it starts to rally towards the close of March. And you can see that generally communicated here with the index divergence as well with the NASDAQ making higher highs and the S&P in the middle making. lower highs while the Dow Jones futures was making lower highs as well.
And you can see the resulting sell-off. And then at the lows between the 21st and the 26th, you can see the divergence, which I'm not going to highlight here. I want you to look at and study it. But you can see the NASDAQ has a higher low comparable to the lows that are seen in the E-mini S&P and the Dow futures contract. So then you can see there is the subsequent rally higher across the major three averages.
So while it's consolidation, it doesn't mean there isn't any opportunities. It just means that you have to look at what you're looking at in terms of context. You can see generally it's consolidation the entire month. Okay, the next one here, we're going to be looking at the month of April.
And I have the contracts for the NASDAQ. E-mini S&P at the bottom and Dow in the center this time. And you can see the divergence that's indicating smart money is accumulating stocks with the Nasdaq failing to make a lower low while the Dow went lower and the S&P failed to go lower.
So index divergence there and we have a nice movement higher. At the same time, we're seeing that mid-month of April that's in the seasonal tendency. It starts off with a slightly bearish tone.
and then it vaults aggressively up into the end of April. And you can see that actually occurring here in all of the averages. Okay, our final example here, we're going to be looking at the month of May, and that's seen here seasonally on the left-hand side.
So it's generally a bearish month. And you can see, looking at the averages on the right-hand side, E-mini S&P is the top chart this time. It makes a slightly higher high while the Dow futures fails to make a higher high and the NASDAQ does in fact make a higher high. And we have a sell-off. into the midpoint, almost the third week of May.
And you see that little flurry higher in the seasonal tendency on the left-hand side as it goes into the close of the month. And that same thing is being seen here in May as well. So it creates a seasonal low intramonth, but overall it's generally a bearish month as a whole.
So now, having brought this up and mentioning it to you, as a reminder, the month of 2017, May, is part of a larger consolidation that's been seen in this year of the recording I'm making, 2017. It's been an unorthodox stock market right now. It's been a market that keeps finding higher highs, but it's doing so with stocks that are formally pushing higher to general market averages. They're starting to lose their highs.
In other words, they're not making new highs. So the market's actually making higher highs, but it's doing it with a lot of the leadership not doing it anymore. So there's going to be times when the stock market's going to defy all logic. It's going to do whatever you think it's not going to do.
It's going to do that very thing and vice versa. So if you're going to be trading stocks, in my opinion, it's better. to focus on times when the market is predisposed to go higher and not be such a bubble like I believe we are in the year 2017. I think that if you are going to be a trader that uses investment ideas like IRAs or retirement accounts, if it's possible for you where you live globally, if you could do it as a self-directed medium, and trade your own choices and your own selections about what stocks you should be in and when to get out. Doing that, I believe, will supercharge your return.
And you're not going to have someone do any better job than you in terms of caring about your money. You care about the money. You worked for it.
You obtained it by inheritance. You've done whatever you've done individually to receive that money. And generally, most of us had to work hard to get it.
We're going to care about losing it. Folks that are at these firms that supposedly are looking out for our best interest, they aren't really looking out for your best interest. And contractually, they're not even obligated to do that, surprisingly, when you look at it closely. So it's a market that always propels new suckers.
There's always a new crowd of willing participants. And it doesn't matter what kind of market we've seen. There's always someone willing to put money into it because the idea is perpetual. Invest for the future.
Invest for tax deduction, the tax deferment, all that stuff, and you all retire rich at the end. And then we have these major stock market crashes and corrections and all these things. And many times people may have had a lot of paper profit, but something happens along the line.
They don't have nowhere near as much as they thought they were going to have or at one time. As an investor in stocks, I still think that you need to be a trader in stocks. There's times you want to be in stocks and times you want to be out of stocks.
And we are focusing with this teaching here in this entire week of presentations when it's ideal based on past information. You're looking at cyclically, seasonally, and statistically where things usually come to fruition. So if we can focus on those little sweet spots, if you will, for investing in stocks, if anything, will at least hopefully be advantageous for us to do so versus just trying to buy stocks because Jim Cramer or somebody else on the top of the list tells us we should be doing so. That's not an idea that should be followed.
So if we do things in our own analysis and we get to the outcome that. delivers a consistent return that outpaces and outperforms the market, which I believe the concepts I'm teaching you this week will do a better job than the general averages. There's a lot of misnomers as it relates to what the stock market average return is per year, because of all these number crunching things.
Just forget all that. Don't even have an idea what you should have in terms of return, because you're probably going to do well different than what you thought you were going to do. And many times, ideally, you'll outperform what your lowest expectation was going to be, and maybe even your highest expectation some years. So As we go through this week's material, just understand that it's aimed at, number one, providing another asset class to use if it is interesting to you. Or if you have a medium where you can do retirement accounts and you can do it as a self-directed medium where you're picking and choosing when you're getting in and what stocks you're owning.
The other lessons by looking at stocks will be covered in an additional video that will be after the fifth lesson. So there will actually be six lessons. videos this week.
So you'll have six videos for this particular week and then we'll close out the session for the month of June. But I'm confident by the end of this week you'll know a lot more about stocks than the average person does. Certainly everyone on YouTube that's supposed to be making money and getting rich on it.
So until our next lesson, I wish you good luck and good trading.