by Ian Harvey
May 25, 2017
Stocks continue to climb following a significant comeback which has erased most of the losses experienced from the drubbing the market received last week - particularly on Thursday. Since then, we have seen a progression of days moving straight upwards.
The S&P 500 Index (SPX) notched a record close yesterday; with the Dow Jones Industrial Average (DJIA) Nasdaq Composite (COMP) providing more wins.
The S&P 500 Index added 6 points, or 0.3%, for its best close on record at 2,404.39.
The Dow Jones Industrial Average moved higher for a fifth straight win, topping the 21,000 level, to settle at 21,012.42.
Meanwhile the Nasdaq Composite picked up 24.3 points, or 0.4% to close at 6,163.02.
Even with the future prospect of another rate hike, weak housing data and the drop in oil prices that was experienced yesterday, stocks managed to shrug off these factors and move higher.
This is not to say that consolidation around the 2,400 mark for the S&P will not occur – due mainly, at this stage, to movement of the agenda surrounding the Trump administration.
However, next week is Memorial Day Week, with Memorial Day officially having been marked on the last Monday in May since 1971.
Historically the week of Memorial Day was quite kind to the trader in relation to the S&P 500 Index, with the average return of 0.53% beating the typical weekly return of 0.16%, up until 2010.
Since 2010 data shows that the holiday week has been a bit disastrous for stocks, where, over the past seven years, the S&P 500 has averaged a loss of over 1% during Memorial Day week, with only two of those returns positive.
But, this could bode well for the rest of the year as data provided shows that the SPX returns for the rest of the year after Memorial Day week, depend greatly on whether the market was positive or negative year-to-date before then. So, if the index was higher year-to-date, then the rest of the year was positive roughly 73% of the time, averaging a return of 5.75%.
So, if next week responds poorly, and with the SPX currently up nearly 7% year-to-date; it is likely that this scenario will eventuate.
Therefore, short-term possibilities would be to provide for some type of pullbacks based on stocks that are likely to be affected – using put options; then be prepared to take on a more positive note after this.
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