February: Harbinger of market tops & bottoms

January 31, 2018 07:00 AM
U.S. economic data & select global influences

February is the shortest month of the year and there is no specific market insight to it such as the Santa Claus rally or January effect. It is one of the poorer performing months in all three major indexes: number eight in the Dow Jones and Nasdaq Composite and number nine in the S&P 500, but averages moderately positive returns in the Dow and S&P 500 with a more robust 0.73% in the Nasdaq.  

However, recently equities have been on a roll in February, producing positive returns in at least six of seven of the last years in the major indexes and was one of the strongest performing months in the major indexes in a strong year in 2017.

Perhaps what is most compelling about equity market performance in the month of February, is its tendency to signal market changes. While everyone will remember that February set the low (on a closing basis) of the 2008 credit crisis bear market, it also preceded the March 2000 Nasdaq top and March 1980 Dow and S&P 500 low. 

The low close set in February 1978 in the Dow and S&P 500 has never been breached. Major tops and bottoms have been set in February or shortly after so traders should pay attention and be prepared. 

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.