The SPDR S&P 500 ETF Trust SPY is up an impressive 3.2 percent so far in July, but that strength comes as no surprise to Argus. The Wall Street adage “sell in May and go away” is a testament to the market’s historical weakness throughout the summer months. However, the S&P 500 has averages a 0.4 percent gain in July since 2000.
According to Argus, that average July gain jumps to a 2.8 percent gain since the Financial Crisis in 2009. Even last year, just prior to the huge August selloff, the S&P 500 gained 2 percent in July.
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Argus analysts believe the daily rate of change (DRC) of the S&P 500 sheds some light on market sentiment. The firm believes the market tends to trade sideways during times when DRC is at its highest and tends to move in one direction when DRC is below average.
As of the end of Q2, the S&P 500 was mostly flat on the year and the DRC was averaging 14.4 points per day. So far in July, DRC has eased to only 9.9 points per day.
“As long as DRC remains low, we predict a continuation of the 2H16 rally,” Argus analyst Jim Kelleher concludes.
Disclosure: the author holds no position in the stocks mentioned.
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