Well, this certainly isn’t an "ideal" sell signal for the annual seasonality system.
Ideally, the market is performing well coming into the last of the "six best months" of the year: November-April. Then as the market starts to decelerate, we get a nice sell signal before the historically bumpier "worst six months" of May-October. Some variation of this actually does occur reasonably often. But not this year.
Before continuing, let me point everyone’s attention to the recently released article, An Unfavorable Election Cycle Is Close at Hand. This article will explain the background of why we’re looking for a specific sell signal at this time and who should be interested in this information.
Please note and understand this crucial piece of information: The sell signal being referred to in this post is ONLY applicable to those using annual seasonality as part of their long-term plan. This is NOT a general signal for anyone else to sell! Please review the article above if you have any uncertainty as to whether this applies to you!
We’re going ahead and giving the MACD (moving average convergence/divergence) sell signal for annual seasonality today. Here’s why.
We start looking for a crossover of MACD (showing a weakening of the market) on April 1. This year, the signal is already crossed over into a negative position as we start the watch period. If the market was mild and this was a "soft" sell position, typically we would wait until closer to the end of the month to pull the trigger, as MACD can bounce around a fair amount (it’s normally a very short-term indicator).
However, with the recent market action being so negative and the signal being pretty deep into negative territory after today’s losses, it doesn’t seem wise to wait for a "better" signal later in the month. The point of annual seasonality is to reduce risk. Waiting for a "better" signal that may or may not come doesn’t accomplish that goal, given that we’re now within the official "watch period" and the recent market action has been clearly negative.
So if acting on this annual seasonality sell signal is part of your long-term plan, go ahead and act on it. For everyone else, don’t take this as a signal to do anything out of the ordinary — keep following the SMI strategies as they’re laid out. DAA and Upgrading 2.0 will give us instructions in their own timing as those systems respond to the negative market action. There’s certainly a possibility that selling into this weakness is going to be selling into a correction low, which is why this signal isn’t ideal. But the annual seasonality system is about risk management, so we’re taking action now rather than waiting and potentially having it get even worse.
