The Best Way To Trade The Indexes Right Now?

Many analysts have pointed out that the Russell 2000 index has been weaker than the other indexes. But then, late last week the Russell 2000 appeared stronger than the other indexes.  Perhaps it was going to lead the way on a rebound. On Friday the S&P 500 staged a nice 1.29% gain. The NASDAQ composite jumped almost 1%. But the Russell 2000 retreated .35%.

The rebound in all the indexes last week caused Stochastics buy signals to appear on the daily charts. But Friday's lack of enthusiasm by the Russell 2000, while the other indexes were playing ball, makes one wonder if this rebound needs more time to weed out the sellers.

Seasonally, the NASDAQ composite gains steadily from this week through the Q1 earnings period of late January through mid-February. It has averaged a 9.6% gain over the next 18 weeks with gains in a high 88% of the years.

The Russell 2000 as a nearly identical track record over the same time period.

Notice that in both of these track records many years produced double-digit gains.

What if you wanted to make a play on one of the seasonal track records? Let's look at QQQ, the easily tradable ETF based on the NASDAQ composite. Let's backtest buying QQQ at the start of this week each year and selling at the close of the week 18 weeks later. To limit risk, let's use an 8% stoploss.

The results show a 258% gain over the 24 years with three out of four trades gaining. The average gain was 16.9% the average loss was 7.9% and the maximum drawdown, from two consecutive losing years, was 15.9%.

With QQQ appearing to rebound off a low, the Stochastics displaying a buy signal on the daily chart, and with a strong seasonal track record, buying QQQ right now and selling it in 14 to 18 weeks is by itself a high probability trade. What would make it ideal is to have a set up where at least a 2 to 1 reward to risk ratio would be present. If we implement an 8% stoploss, QQQ's average 10% gain over that time period  leaves only a 1.25 to 1 reward to risk ratio. But if you feel confident the indexes will sport gains over the remainder of the year (a ‘Santa Claus rally'?), QQQ may be one of the best ways to play it.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

The content on any of Market Tamer websites, products, or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options, and other securities involve risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities are not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf). The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

Related Posts

 

MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.