December is the holiday season and August is the summer.
Few, if anyone (in the Northern Hemisphere), would debate that.
The seasonal similarities and differences between these months don’t stop there.
If you’ve been a student of the market for years, what I’m about to say and ask won’t be new, but it will still catch your attention, because you know it matters.
If you’re new to the market or haven’t yet focused on the impact of seasonality on market behavior, then perhaps you are in the same position as the two young fish in the cartoon below.
No offense intended!
Everyone would benefit from recognizing that, “we can’t see when our taillight is out.”
Driving with a broken taillight is a great way to get rear-ended, and if that were to happen, it could be disastrous. Would it be the other driver’s fault or yours?
More importantly, the resulting problems are all yours!
Of course, car companies have found a solution to this lack of “rear taillight perspective,” but many investors don’t recognize analogous situations in their trading.
Are you aware of and taking advantage of the perspective that seasonality offers you as an edge in anticipating market behavior?
Are you paying attention to the summer market behavior – the personality that begins in July and plays out in August?
Perspective can change everything.
Understanding your environment is an important perspective.
Successful traders embrace the humbling nature of markets and constantly strive to improve their strategic and tactical understanding that investing is a game that’s played without ever having complete information before you have to make your next move.
Additionally, even many of the facts that are used to guide investment decisions come with the pervasive disclaimer – “past performance does not guarantee future results.”
What Does August Mean To You – Less or More?
For some active investors and traders, August is a time to spend less time looking at markets. For some, it’s a time to spend more time diving deeper into trading-related topics.
This week’s Market Outlook provides you with either path.
If you’d like to DO LESS in Augusts, and therefore prefer a summary of what you need to know, it’s this…
August and September have a reputation for being weak, but getting an edge from “seasonality” is much more effective if you take the time to ask the simple question of – are we in the typically weak August or not?
THE FISH IN THE CARTOON ARE SMARTER THAN MANY INVESTORS – they took the time to ask the right question!
The next logical question should be, “How would I know?”
Answer: Use the July Calendar Range.
If you don’t know how to use the July Calendar Range, I’d recommend diving deeper into this week’s Outlook.
In the spirit of August being a time to dig deeper into becoming a better active investor here are two interesting resources for expanding your perspective on success in investing that you can enjoy while in the office or on vacation.
- This is a great article from Bloomberg this week, “How To Teach Your Kids Poker, the Easy Way.” The article requires a Bloomberg internet account (not a full terminal), but if you don’t have an account, I summarized the article below. The article is a better read than the summary, so I encourage you to read it if you can.In my opinion, this relates directly to trading on several levels.
- Poker is a game that requires you place your bets, and manage your risks in an environment where you’re always subject to chance and never have complete information.
- The author’s method of breaking down the game of poker into two simple but primary games within the game is directly analogous to the best way to win in trading and investing – understand what part of the game you’re playing, and get good at it! This will build a toolkit of knowledge that becomes your tactical and strategic edges in the game of active investing.
The article summary
- The author has three children — ages eight, four, and four (twins) — and values poker as a family activity, especially since five players make for a respectable poker table.
- Early attempts to teach poker the “traditional” way (starting with the ranking of hands) proved ineffective for young kids, as memorizing hand order isn’t central to the game.
- Poker is fundamentally a game of betting and incomplete information — winning often comes from making others fold, not just having the best hand.
- The recommended teaching method starts with one-card poker:
- Everyone antes one chip, gets one face-down card, and plays a single betting round.
- Highest card wins; no pairs, straights, or complex rules.
- Kids quickly learn core poker skills: when to bet, call, fold, or bluff; the value of “position”; and reading opponents’ behavior.
- As children improve, introduce hand rankings gradually:
- Move from one-card to two-card poker (pairs beat high cards).
- Then to five-card straight poker, then five-card draw, and eventually Texas hold’em.
- The author simplifies chips so each is worth the same, but uses different colors for each player to make it obvious who is winning and from whom they’ve taken chips.
- The game is played purely for fun — no money or prizes — but the kids are highly motivated by the competition itself.
- The author’s daughter, taught this way from age four, is now a skilled no-limit hold’em player studying modern poker theory. The twins are still on one-card poker, but the goal of a true family poker night is getting closer.
- This book “The Great Mental Models, Volume 1: General Thinking Concepts,” is as it is described on the Amazon (NASDAQ:) site…“This first book in the series is your guide to learning the crucial thinking tools nobody ever taught you.Time and time again, great thinkers such as Charlie Munger and Warren Buffett have credited their success to mental models–representations of how something works that can scale onto other fields.”
As a graduate of Colby College, a great liberal arts school, and as a strong advocate for the power and importance of a multi-disciplinary approach to problem-solving, I enjoy using August as a month to delve deeper and wider into understanding the markets.
The discovery of the simple foresight that the July calendar range is a product of this practice, and…
The current market environment, in which markets are relentlessly pushing higher despite plenty of data to fuel a wall of worry, is a classic situation in which the investor who has a good perspective wins.
This year, both of the resources fell into my orbit this week with a serendipity that I couldn’t help but share.
I hope they help you enjoy the summer and dive deeper into mastering active investing at the same time.
Summary: Markets put in a strong rebound from last week’s sell-off, with major indexes up 1.4%–3.8%, the closing at a new all-time high, and leadership from miners, homebuilders, , and alongside easing volatility and continued leadership in growth stocks. However, underlying breadth and volume patterns remain weak, with bearish risk gauges, and several sectors—including and —still lagging.
Risk On
- After a surge in volatility and sharp drop in markets heading into last weekend, market action stablized around the recent highs with performance up between +1.4% and +3.8%. Nasdaq put in a new all-time high close on Friday. (+)
- Sector performance was strong this week, with only energy and biotech down. Gold miners, homebuilders, and retail led the way, with technology and semiconductors not far behind. The nearly 11% gain in gold miners was the standout and the one major potential counter-reading amongst sectors. (+)
- Volatility came off significantly, putting it back towards the lowest levels we have seen since February. (+)
- Growth continues to lead as it pushed to new all-time highs in a strong bullish phase. Value is not far behind but remains in the middle of its trading range for the last six weeks. (+)
- Developed foreign markets took a small relative lead on the week, though both developed and emerging foreign markets along with the U.S. markets remain in reasonably strong bull phases. (+)
- recovered a bit this week and is only a few percent off its July all-time high. (+)
- August tends to be seasonally a moderately positive month for the and Nasdaq, while a bit more muted in small caps. (+)
Neutral
- Up Down Volume Ratio and McClellan Oscilator all improved this week, though the McClellan Oscilator still has a negative reading. (=)
- The New High New Low ratio bounced on its shortest time frame while it continued to trend lower on longer time frames. (=)
- The bounceback in retail and semiconductors were the brightspots in the modern family with biotech, regional banks, transportation, and small caps still lagging in phase relative to the broader market. (=)
- Soft commodities came back a bit, almost recovering its 50 Day Moving Average. remained in a tight trading range after the big move following the tariff announcement/clarification. (=)
Risk Off
- Volume patterns still decidedly bearish with no accumulation days in the past 10 in DIA (BME:) (18893), , and . had 2 accumulation days and 4 distribution days. (-)
- On the color charts (moving average of stocks above key moving averages), the 200 day readings are mixed, while the faster 50 and 20 day readings are negative across all key indexes. (-)
- Risk gauges are decidedly bearish at a 20% out of 100%. (-)
- Gold swung back into a bullish phase, though it is still clearly in the sideways trading range it has been in since mid-April. was weak on concerns about tariff-related slowdowns and increasing supply from OPEC+. (-)
Have a great weekend