Q3 Has Been Exceptionally Strong – Here’s Why Stocks Will Do Well In Q4

Q3 2018 is now over. So far, the U.S. stock market’s price action has exhibited extreme strength.

This is from yesterday’s market study.

The S&P 500 has gone up 6 months in a row. This is bullish (historically). Look at the 9 months forward returns.

Moreover, the S&P has completely ignored “sell in May and go away”. Historically, this is a sign of bullish price action.

As you can see, both of these studies have 1 thing in common: the consistency of forward bullish returns seems to taper off at the 9 month-later mark. This supports the case that the U.S. stock market will make a major top somewhere in mid-2019 (9 months from today).

Here’s today’s market study.

This quarter (Q3 2018) has been the strongest quarter since 2013. This is uncommon, considering Q3 is typically weaker than the rest of the year (seasonality). Remember: when the market ignores “bearish” seasonality, it’s typically a bullish sign.

*If a market goes up when it “should” go down, imagine how much more it’ll go up when it “should” go up.

Here’s what happens next (historically) when the S&P goes up >7% in Q3.

Moreover, the S&P has now gone up 11 out of the past 12 quarters. Here are the dates, overlapped onto a chart of the S&P 500. During an economic expansion, this first happened in:

As you can see, this is a sign of late-cycle behavior. However, late-cycle behavior can last for years!

And lastly, the S&P 500 has made a new all-time high in September while the Russell 2000 (small caps index) fell. Before people tell you “this is a sign of non-confirmation”, here’s the data.

Here’s what happens next when the S&P closes at a monthly all-time high, when the Russell 2000 index falls. (Data from 1987 – present)