S&P 500 Prints New ATH: Why It Pays To Ignore The Noise & Align With The Seasonal Movement To Price?

Another historic week with the S&P 500 breaking out and printing yet another record high. Many top-callers were hoping this would never happen but once again, they have been wrong. Remember, profit over ego. 

A Quick Revision

In my previous post on the S&P 500, I mentioned the seasonal movement to price and also that price was finding support. Price has since bounced off support and recovered nicely. 

The natural movement to the stock market is quite predictable which, if you align with, really helps with putting a portfolio together. Let's do a quick recap.

• In the summer months, the stock market tends to go sideways. This is because people go away on holiday and institutional money dries up. 
• Post-summer, September and October, there tends to be a pullback in the market. This year we saw a circa 7% decline. Last year saw a circa 10% decline in the same period. 
• Post-October there tends to be a rally that can happen through December known as the Santa Claus Rally and even into January. 

• February, we then tend to see a pullback before another rally into the summer months before the pattern repeats.
  The point to note here is that whenever there is any reversal in the market, the top-callers are out spreading their fear-mongering which people get sucked into. Why people get sucked into it is largely based on a lack of financial literacy which includes being completely unaligned with the natural movement to the stock market as highlighted above. 
  Knowledge trumps everything and makes you immune to the noise, news and ill-informed opinions plastered all over our media channels. 

• When it comes to the raw facts, all that matters is profit. By turning off your media channels and focusing on price, you will make far more of it and without the stress of ever worrying about a market crash. 
  If a market reversal does come in, well that is where risk management and exit management both come into play as they are pillars of a strategy. And in reality, a bear market is nothing to fear as we simply exit and take profit from our long positions and then short the market when the time is right.

So what next for the S&P 500?

Well first and foremost, we need price to confirm a continuation of the bull trend. 

• This most recent breakout has the potential to be a fake breakout so we first need to see a clean move out of consolidation and further strength to the upside. 
• If and when a bull trend continuation is established, where is price is likely to go. 
• I keep it simple and focus on round numbers. I see price targeting 5000. This means there is plenty of upside potential for price which will of course take the best-performing stocks to new highs too. 

Patience is one of the hardest skills to master in investing. Standing aside, watching profit decline is never nice to watch but it is a necessary part of the process if you want to achieve large compounded profit. 

With the S&P 500 pushing to new highs, the Dow Jones 30 and the Nasdaq 100 will follow. 

My portfolio is nicely balanced with stocks from a mixture of sectors. I will continue to build my portfolio as price on the S&P 500 pushes towards 500.

Each position has a stoploss and a small risk so my downside is well managed. By letting these positions run and then compounding strategically, I have uncapped upside potential. 

As the saying goes, the trend is your friend until the bend at the end and there is no bend for now. Top-callers will be back in hiding until the next time...

Zaheer Anwari - Co-founder of Sublime Trading