These Historical Tendencies Favor More Positive Market Action

The indexes are starting the July 4 holiday week at all-time highs. There has been a tremendous amount of news flow recently, and that will continue this week with President Trump's massive budget bill being voted on in Congress and the June jobs report due on Thursday.

Tariffs and trade deals will move to the forefront as Trump's deadline for deals is quickly approaching. There continues to be talk about how a flood of deals is about to be finalized, but while there has been progress with China and others, there is nothing final yet.

Canada has dropped its proposed digital services tax after U.S. objections. Negotiations will continue there. The market will be bouncing around on this sort of news all week.

The market action on Friday was impacted by the massive rebalancing of the Russell indexes. There will be some unwinding of those moves as the market reverts to normal trading. That adds an element of randomness to the action and will make trading more difficult.

The S&P 500 has ralled 18% to a new high within the last three months. This is a rare occurrence, happening only eight times since 1927. In all eight cases, the S&P 500 was higher three months later, with an average gain of 6.8% according to data from SubuTrade.com. 

It is questionable whether there is enough data there to be statistically significant, but it does illustrate how new all-time highs generate sustainable momentum. The old dictum about buying low and selling high isn't an obstacle for the market.

The bear-bull debate is going to focus on the issue of whether or not the economy is slowing and inflation is sticky. The bears have been adamant that weaker economic numbers are coming soon due to the tariffs, but there is still very little data to back them up. Even if they are correct, many investors are taking refuge in AI and technology sectors that are less economically sensitive.

We have a positive open on Monday morning. The three-day period leading up to the July 4 holiday is typically positive. The S&P 500 has produced an average gain of 0.3% during that period and is positive 61% of the time. The day before the holiday is typically the strongest, but there is weaker action after the holiday.

I'll be focused on the charts and playing some defense to protect gains. It's becoming very tough to find new buys, but I will keep digging.

At the time of publication, Rev Shark had no positions in any securities mentioned.