I’ve been hinting at this topic since the beginning of the year, and it’s time we cover it more in-depth.
You see, this one little piece of seasonality data can serve the market with a devastating blow.
And worse yet, there is a catalyst coming up that could exacerbate the results of this data.
I know my Night Traders reading this has caught on to what I’m talking about – because they have traded it with me.
I’m talking about Week 9…
It’s the worst period of the year for the market, and it all kicks off next week.
It’s the bane of many traders, whether they know it or not.
But before we get into how to trade it, I want to give you a bit of an explanation so you can better understand what Week 9 actually means.
This is a historical chart of the week-by-week S&P 500 performance. We’re approaching Week 9, which, over the past 20 years, has seen an average drop of 1%.
The “20 years” part is what makes this a very compelling chart for me.
This means we have taken data from multiple bear markets, multiple bull markets, a recession (more like two), and thousands of trading periods.
It creates an extremely diverse subset of data, and it all averages out to the ninth week being the worst week for the market for the entire year.
Luckily, this is just a single week, and there are brighter roads on the other side, as the market tends to get a bit quiet after next week until April. For what it’s worth, that is a seasonally strong month for the market. But not Week 9.
So, what causes this drop to happen, the Fed, longer naps, or earnings season?
I’m going to be frank with you… I don’t know what causes it. Nobody does for sure, although there are a few working theories. But it doesn’t really matter, does it?
You see, this is where the science of the market meets the art. We don’t need to know the cause of the seasonal drop when we can prove that it happens consistently enough to trade it.
This year it could be the Personal Consumption Expenditure (PCE), or it could be earnings, who knows. Or rather, who really cares?
Because there is a simple approach that you can use to ensure the safety of your portfolio – and even make a profit while you weather the storm.
Don’t let Week 9 scare you out of the market, even if it’s just for a week.
Remember, you are in your position for a length of time that is likely longer than a week. A single down week should not have you considering dumping all of your long positions. So don’t start running into the streets and throwing your hands up saying, “I’m out, we are in Week 9.”
The correct way to protect your trades is to start positioning yourself to take some gains from the short-term potential.
One of the easiest ways to do this – and yes, it’s very easy – is hedging.
Remember, every stock you are in should have a bullish and a bearish limit, and defining those two numbers as you get into the stock makes this tactic even easier.
As a matter of fact, I gave an awesome example of how I’m protecting myself this morning by hedging my position on C3.ai Inc (AI).
I had a feeling it would break below $25, so I implemented a hedge on my position.
The approach was simple: I had a target of $20, and I wanted $5 in intrinsic value from the position.
So I am holding my long position while going short and trading it to $20. When it hits that target, I can turn around and add to my long position with the money that was made from the short-term potential.
I know that this style of trading can make your stomach turn if you are unsure about a trade, but if you’ve done the work and know where the stock is going, great. You don’t need to sell your positions but be prepared for some turbulence along the way.
Being prepared for events like these can multiply your gains exponentially, especially if you can capitalize.
And because there is only one more trading day before Week 9 hits, I am going to show you which sections of the market are going to get hit the hardest.
And if you ask nicely I’ll be giving you a few side trades to go along with the morning show tomorrow.
I’ll see you there.
