Suddenly, stocks are hot again, with the S&P 500 is on track for its best week of the year. The index has rallied nearly 5 percent since the start of the fourth quarter, but if history is any indication, the recent rally could soon fade into the abyss.
"If you look at the seasonal data, it suggests we will see a more lackluster [quarter] than usual," technician Stephen Suttmeier told CNBC's "Futures Now" on Thursday.
According to Suttmeier, since 1928 the last quarter of the year has a tendency to be "quite bullish" with the S&P 500 posting an average return of 2.61 percent in the 87 years. However, things could take a different turn this time around.
"Bullish fourth-quarter seasonals do not work this year," said Suttmeier. "When the market has been lower through the third quarter, the fourth quarter tends to follow on that weakness," added Bank of America Merrill Lynch's technical research analyst. In the 30 instances where the market was negative at the start of the fourth quarter, Suttmeier noted that the average return was down nearly 1 percent.
"The other thing that is interesting is when you take those 30 observations, where you are down through the third quarter, you only end up on the year about 10 percent of the time." The S&P 500 is down more than 2 percent year to date.
If the recent rally were to continue, Suttmeier said, the market must break through key resistance levels in order to maintain momentum. He identifies these areas as the September 17 high of 2,020 and the falling 200-day moving average which comes in at 2,062. If the S&P 500 continues to trade below those levels it presents "a big risk that we have a bearish shift in trend that we need to pay attention to."
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.