July Stock Index's Seasonal Buy
The Dow Jones Index has closed higher on approximately July 22 than on June 28 for 15 of the past 15 years. Additionally, seven of those years never experienced a daily closing drawdown.
The Nasdaq has closed higher on approximately July 29 than on July 01 for 14 of the past 15 years. Additionally, five of those years never experienced a daily closing drawdown.
The Dow Jones Index has closed higher on approximately July 22 than on July 06 for 15 of the past 15 years. Additionally, four of those years never experienced a daily closing drawdown.
S&P 500 Correlation: A Likely Co-Rally
The S&P 500 moves in lockstep with the Nasdaq and Dow Jones, boasting correlations of 0.97 and 0.93, respectively, over the past 180 days (table below). This tight relationship means that if the Nasdaq and Dow rally in July, the S&P 500 is highly likely to follow suit, driven by similar seasonal factors - such as a positive holiday buying bias, fresh capital for the start of the second quarter, and earnings season - offering traders another avenue to capture gains.
Bearish and Bullish Fundamental Factors to Watch
Bearish Risks:
Geopolitical Escalation: Rising tensions in the Middle East (closing the Strait of Hormuz) could spike oil prices, pressuring stocks.
Weak Earnings: If tech giants like Nvidia miss estimates, the Nasdaq could falter, dragging the Dow and S&P 500.
Bullish Catalysts:
Strong Corporate Earnings: Robust Q2 reports, especially from tech and financials, could fuel the rally.
Inflation: If inflation ticks down, this would ease the path for the Fed to cut rates, potentially leading to a surge in growth stocks in the Nasdaq, which could in turn lift all three indexes.
Assets to Trade the Seasonal Window
Traders have multiple ways to play the July rally:
ETFs, such as QQQ (Nasdaq-100), DIA (Dow Jones Industrial Average), and SPY (S&P 500), offer diversified exposure with low fees.
Futures: E-mini Nasdaq (NQ), micro-Nasdaq (NM), Dow futures (YM), micro-Dow futures (YR) will allow leveraged bets on index moves, ideal for experienced traders.
Individual stocks, such as tech leaders like Nvidia (NVDA) or blue-chip companies like Boeing (BA), tend to align with the seasonal trends of the Nasdaq and Dow.
Call Options: Buying near-term calls on QQQ or SPY can amplify gains with defined risk.
Select assets that align with your risk tolerance and account size, and always employ proper position sizing to manage your investments effectively.
A total of approximately 30 monthly historical trading strategies for outrights and spreads are presented each month.