The March Reversals

Introduction

Since March 2000, the SP500 has been in a rhythm which I find very interesting. I do not predict or forecast market directions, and this is neither a prediction nor forecast, but until the rhythm changes, it is wise to pay attention.

Lets go to the charts…

March 2000 - a top to remember.

March 2001 - a short term bottom and a tradable bounce worthy of 20%.

March 2002 - another major top which produced excellent profits for the sellers.

March 2003 - a major bottom which produced excellent profits for the buyers.

March 2004 - a short term top but difficult to trade for both buyers and sellers.

March 2005 - here we are, does it appear that we are at a bottom, or a top? Elliott wave fans can quickly recognize the 5 waves up since Aug 2004, because we just made a higher high this first week of March. Obviously, it does look like we are closer to a top than bottom, further evidence is apparent by checking out the internals….

OK, despite a higher high in price, the percentage of stocks with a buy signal within the SP500 index actually dropped from the Dec high, this creates a bearish divergence.

The summation index also confirms this bearish divergence.

Summary

The seasonal strength and weakness in the markets have been well documented over the years. I've had the good fortune of working with a market researcher a few years ago, and from studying over eighty years of data, there is no question about the seasonal strength between the months of October to April, and the seasonal weakness between the months of May to September. But that was before the internet era. Nowadays, any ordinary investor can have easy access to the technical structure of the markets, with some very common indicators defining the up and down cycles of the markets. The increased participation of ordinary folks into the once guarded fortress of the financial markets, has created a major impact on how the markets behave, and these behaviors are easily observed by trained eyes thru some simple charting and technical studies.

Jack Chan at www.traderscorporation.com

5 March 2005