What to Expect This Month | Focus on Stocks: July 2024
Historically, July has seen stock prices move higher almost 80% of the time, cementing this in our trader's notebook as a time to stay home and trade. Others can vacation this month!
Chart 1 is my true seasonal pattern for the Dow for the last 124 years. It is a path we should respect and profit from.
In a moment, I will tell you the powerhouse trade of the month based on the Independence Day holiday. For now, though, let's look at a few past years to see how actual prices have followed the path.
The lesson here is that prices (generally but not specifically) follow the pattern. Additionally, the strongest, most reliable part is early month strength.
Our 4x4 Trade
As you know from our June Family Gathering, stocks usually rally in early July. Here are the details of the trade.
The Fourth of July holiday has been a very favorable time to buy stocks for almost 100 years. Art Merrill first wrote about the bullish bias of this holiday in his 1966 book, Behavior of Prices on Wall Street, an analysis of price action from the 1920s forward. With it, Art opened a huge door to holiday trades. Yale Hirsch and Marty Zweig walked through that door with additional research confirming the original studies. Around 1985, I began to establish specific rules to take advantage of this seasonal bias.
Ten years ago, I wrote that buying the S&P 500 E-Mini contract on the opening four trading days before the holiday was the ideal sweet spot.
That sweet spot still exists. Let me show you.
Table 1 shows the results of buying X trading days before the holiday with a $1,700 stop, or exiting on the first profitable opening. Look at that! Buying on the fourth trading day before Independence Day has been a winner 88% of the time.
If you get aboard too early, the eighth trading day before, you get tagged with a $15,137 loss. We see the bullish wave begins about five trading days before. This is something thinking traders will keep in mind.
Okay, we see now it's "game on" four trading days before. The next question is, does this trade have legs? Can we hold it for larger gains?
The answer is that we sure can. But, for everything we get, we give up something. Holding for 10 trading days skyrockets profits to $51,450 (net profit over all years tested)... while accuracy plummets to 73%. Should we use a larger stop if we are going to hold for 10 days?
Increasing the stop to $3,000, decreases profits. Having a tighter stop, say $1,100, does the same, ratcheting net profits down a notch to $46,075.
Shorter-term traders will recall the quicker exit made less money, but with greater accuracy. Let's ferret out the optimal trade there.
My testing shows short-term traders can use a $1,100 stop with a one day hold to maximize this short-term trade.
For those that don't trade futures, you can trade the SPY (an ETF for the S&P 500). You can use the same entry day and hold time while using a stop of 1.5% of the price from your entry.
TDOMs Too
Next, I am presenting the best Trading Days of the Month (TDOM) for July.
What we see here is that buying the S&P 500 E-Mini futures contract on the opening of the ninth trading day in July has been profitable 84% of the time, netting $16,712 (total all trades). The test used a $2,000 stop loss and exited on the first profitable opening, after being in the trade three trading days. Given what you saw earlier about the July Fourth trade, this comes as no surprise... the first part of July has been bullish for many years.
SPY 2% Five Day Hold
The same thing holds true for the ETF SPY that simulates the S&P 500 Index. The trading day session openings are a little different. The futures market opening is in the prior evening session, not the morning like stocks. Yet the same July bullishness prevails.
The optimal entry has been on the opening of TDOM four, but note three and five have also been profitable. For this test, I used a stop-loss of 2% of the entry price, subtracted from the entry. If not stopped out, the trade is held for five trading days. After five trading days, exit on the first profitable opening.
Wealth is Not Health
I am not much of a believer in magic medical bullets. But if there is one, it is apigenin.
So just what is this supplement? You have probably never heard about apigenin. It is a flavone-class dietary supplement found in fruits and vegetables. If you have had chamomile tea, you have had apigenin.
My greatest health worries are cancer and Alzheimer's disease. Let's look first at Alzheimer's.
Alzheimer's disease (AD) is a progressive disorder of the central nervous system. The incidence of AD is about 35 million people worldwide. That will be true for 10–15% of people age 65 to 85 and 35% of those 85 years and older. It is estimated that this figure will triple in the next 40 years.
In one study, apigenin and β-estradiol significantly reduced the number of β-amyloid plaques, as well as the symptoms of memory impairment and learning, and decreased the expression of caspase-3 in treated animals. The beneficial indications are reported and discussed in detail, including effects in diabetes, amnesia and Alzheimer's disease, depression and insomnia, cancer, etc.
One recent study by Zhao et al. (2013) tested the neuroprotective effects of apigenin in the APP/PS1 double transgenic AD mouse model. Four-month-old mice were orally treated with apigenin (40 mg/kg) for 3 months. Their results showed that apigenin-treated mice displayed improvements in memory and learning deficits, and a reduction of fibrillar amyloid deposits. Additionally, the apigenin-treated mice showed restoration of the cortical ERK/cAMP response element-binding protein (CREB)/brain-derived neurotrophic factor (BDNF) pathway involved in learning and memory typically affected in AD pathology.
Similarly, in another study, Aβ25–35-induced amnesia mouse models were treated with apigenin (20 mg/kg), resulting in improvements in spatial learning and memory, in addition to neurovascular protective effects (Liu et al., 2011).
In vivo studies with non-AD-related animals models report significant reductions in LPS-induced IL-6 and TFN-α production in apigenin pre-treated mice (50 mg/kg) (Smolinski and Pestka, 2003). Another study indicated neuroprotective effects in apigenin pre-treated mice (10–20 mg/kg). The researchers went on to say that "[b]ased on the results emerging from cell culture, animal and human studies, we conclude... that apigenin is an... exceptional candidate for an anti-inflammatory therapy against AD and other related degenerative disorders, ready to enter clinical trials within a short time frame."
Cancer Too
Let's begin with the end...
It is well documented that apigenin (4',5,7-trihydroxyflavone), among other flavonoids, is able to modulate key signaling molecules involved in the initiation of cancer cell proliferation, invasion, and metastasis.
A total of 25 studies focused on the anticancer effects of apigenin on various cancer types, including liver, prostate, pancreatic, lung, nasopharyngeal, skin, colon, colorectal, colitis-associated carcinoma, head and neck squamous cell carcinoma, leukemia, renal cell carcinoma, Ehrlich ascites carcinoma, and breast cancer.
Overall, apigenin reduces tumor volume, tumor-weight, tumor number and tumor load. Apigenin exerts anti-tumor effects mainly by inducing apoptosis/cell-cycle arrest.
This article, focused on "apigenin and its marvelous role in prostate cancer therapy", sheds light on apigenin-induced apoptosis in various prostate cancer models. The defined inhibitor provokes apoptotic signaling in these models by multiple mechanisms like restraining HDACs, declining.
The strong anti-oxidant and anti-inflammatory activities of apigenin are a substantial reason for its possible cancer preventive effects (Singh et al., 2012). Encouraging metal chelation, scavenging free radicals, and triggering phase II detoxification enzymes in cell cultures, as well as in vivo tumor models, are also functions of apigenin (Middleton et al., 2000). More importantly, apigenin significantly contributes in the prevention of cancer by inducing apoptosis in different cell lines, as well as animal models (Kaur et al., 2008).
In addition to anti-inflammatory and anti-oxidant effects, apigenin possesses a significant anti-cancer property in different types of cancer cells, such as breast cancer (Perrott et al., 2017), liver cancer (Qin et al., 2016), PC (Johnson and de Mejia, 2013), prostate cancer (Shukla et al., 2014a), lung cancer (Pan et al., 2013), and colon cancer (Lee et al., 2014).
I also found this: "apigenin has potentially advantageous effects on cellular processes in many solid cancers, including those of the breast, prostate, lung and lymphoma, and leukemias" (Lefort and Blay, 2013).
There appears to be very few side effects. No toxicity has been reported as a result of standard dietary apigenin intake. It should be noted, however, that when dosages exceed typical intake to an extreme (30–100 mg/kg of bodyweight), sedation has been reported as a side effect.
Dosage ranges from 50mg a day to 500mg.
As always keep in mind I have no medical training. This is just one man's attempt to live longer and better; certainly not a recommendation. Like me, I suggest you study and decide for yourself.
Gross Domestic Product to Forecast Stock Prices
There has been a lot of banter recently about how a declining GDP will tumble stock prices by 15% to 20%. On the other hand, the perceptual bulls are telling us GDP will hold about the same. So, their stock market expectations remain bullish.
I asked myself, "what if we knew what GDP would be a year or two in advance?" It seems like that would be a great help in navigating the waves of the stock market ocean.
With that in mind, I created the following charts where I pushed GDP out into the future by a little over two years. It certainly seems that if we had such a prescient knowledge of economic growth, our stock market timing would improve.
Here you see what I wanted to know... the red line is GDP pushed forward about two and a half years. The Dow is in black. Right now, it seems to suggest a stock market decline. That is if — and only if —there is a relationship here. Next, let's go back in time to discover what the relationship is (if any).
Again, GDP (in red) has been pushed forward the same amount. We see it declined from 2007 to 2012. While stocks broke badly in 2008, they staged a great rally from 2009 to 2011 when GDP was suggesting lower prices. Hmm? What are we seeing here? Maybe these upturns are bullish for stocks; look at 2014 and 2016.
There is more to learn when we go back another 10 years. The huge GDP decline certainly did not drive stocks down in 2003-2004. However, the GDP low in 2004 was a good time to buy stocks. GDP also gave an alert to the 2008 bear market as it peaked out in late 2006/2007.
In Chart 9, we see the entire range of market activity for the last 25 years. Can we now draw some workable timing observations? What do you think? What I notice is the upturns in GDP have been good times to buy stocks. I don't see any clear-cut ways of using this data for selling.
Okay, let's go back and look at more data. Perhaps that will help.
In Chart 10, we go back to 1986. The only consistent pattern I see is the upturns in GDP (keep in mind they were known two-and-a-half years in advance as the red line has been pushed forward) have been good place to buy stocks. I wish I could say the same for downturns, but that is just not the case. GDP was down from 1987 to 1993 while stocks rallied. The 1997 dip in GDP saw the Dow run to new highs.
Now go back to the first chart in this series. We see there is a slight upturn scheduled for mid-2025. We will have a better idea as to how much of a rally to expect as more data comes in.
Takeaway on GDP
Looks like the data gives us a good advance idea of when to expect rallies, but that's about it. The larger point, as I see it, is to disregard all of the analyst palavering. Don't let GDP numbers or comments get you off your investment path. Pay them no heed.
Where Now? What Next?
As you know, I am long-term bullish while short-term negative, but that is about to end. Why? Next are my current cycle forecasts for the Dow. The first one uses weekly data. The second uses daily data. They both show a low in August, which suggests to me that both long-term and short-term will be in harmony.
We can fine tune this picture using daily data. Doing that suggests the first attempt at a buy point around July 25-28. Then, in early August, expect the rally to take off.
As always, keep in mind I do not expect perfection from these cycle forecasts, but they have been Jim-Dandy road maps to help us see the future.
These two charts suggest we should soon start looking for stocks to position at that time.
The ones to focus on are the ones that are stronger than the average. The first thing is to select stocks you like, long-term winners, etc. Then apply the final touchstone... comparative strength. This is my "trick of the trade".
Here, let me show you what I mean.
In the top panel, you see the Dow. Underneath that are three actively-followed stocks. Which ones and what they do does not matter. What matters is that when the Dow bottomed, the stock in blue continued lower... it was weaker than the averages. Avoid stocks like that. Sure, some will arise like a phoenix from the ashes. It's just the odds (which is our game) are not as good.
Instead, look for stocks, like those in the bottom two panels, that not only hold up on declines, but do so better than the average. Note in both cases that these stocks outperformed the Dow, boosting up to new highs! I have been using this trick of the trade since 1969. It has been a godsend. Now... it's yours!
In Closing
I got lucky in July calling for a top in Nvidia, as well as what that meant for the market averages. Following the forecast, NVDA dropped $500 billion in market capitalization! Here is the road map I think it is now following.
Make sure you attend our family meeting on July 18th at 2pm Eastern Daylight Time. I will attempt to zero in on precise timing and the best stocks for the rally. I have a large shopping list of stocks with the task at hand to pare them down to just a few.
In the meantime, closely follow your stocks. Look for those that are comparatively the strongest. I assume we will soon see market weakness. Do not let it frighten you.
Good Luck and Good Trading,
Larry Williams
If you have questions for Larry that you'd like addressed in future postings, please email familygathering@stockcharts.com.
