Indicator of the Week: It's the Most Bullish Time of the Year

The upcoming six-month period has historically been the most bullish for the SPX

Senior Quantitative Analyst
Oct 28, 2015 at 7:00 AM
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With October coming to a close, it's a good time to remind you that we are now heading into the most bullish six months of the year. Over the past 50 years, the November-through-April average gain of 6.56% for the S&P 500 Index (SPX) tops all other six-month time frames. Likewise, the May-through-October period, averaging a gain of just 0.83%, is the most bearish six months of the year. Stock performance since May is about what we could have predicted, given the table below. The S&P 500 has declined a little less than 1% since then. Historically, in addition to an average 6.56% gain over the next six months, the index has been positive 76% of the time. Just as the last six months have more or less corresponded with history, hopefully the next six months will, as well.


How We Got There: The chart below shows the typical paths taken during the two time frames to their respective returns. It really highlights the difference in these two time frames. You can see the May-through-October time frame pretty much chops around between 0% and 1% throughout the six-month time period. The November-through-April time period is a pretty steady uptrend to 6.56%.


Bearish Sentiment in II Poll: If the data above isn't bullish enough, maybe this will get us excited. Investors Intelligence (II) releases a sentiment poll each week showing the percentage of investor newsletters that are bullish, bearish, or expecting a correction. To gauge the sentiment heading into November, I looked at the average difference in the bulls and bears in this poll over the prior month of trading. Currently, the average bears are slightly higher than the average bulls, indicating investors are pessimistic about stocks. The table below (and our contrarian philosophy) suggests the more pessimistic investors are, the more bullish the implications for stocks. Over the past 50 years, when there have been more average bears than bulls, the next six months have seen an average gain of about 9% and been positive 86% of the time. When the II poll suggests a lot more bulls than bears, the average gain is 3.83% and returns are positive less than 70% of the time. The pessimistic attitude of investors apparent in this poll is healthy for stocks going forward.



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