June 2010 Strategy Calendar

I know the headline above provides little solace as the bull market has deteriorated dramatically in May, but since 1950 June has been the worst performing month in midterm years for both the Dow Jones Industrials and the S&P 500. In the June Vital Statistics table below June has performed slightly better since 1971, yet still negative across the board.

With May currently on pace to log one of the worst Mays since World War II and the worst monthly performance since the March 2009 bottom, we maybe on the verge of a return to the old “May/June disaster area” we mentioned last month. June is still the last month of NASDAQ’s and the Russell 2000’s best consecutive eight months, but with technical, fundamental and geopolitical breakdowns abounding, we’ll be looking to exit any remaining seasonal trades on early June strength.

Market weakness deep into June could provide the launching pad for a stronger than usual “summer rally (Stock Trader’s Almanac 2010, page 70)” or a decent pop from the last few days of June into mid-July. However, as we have been pointing out over the last month and detailed in our 2010 Annual Forecast, the prospects for a further decline continue to mount and we expect further declines before the market is able to reach new recovery highs. 

June’s first trading has been strong with the Dow up 10 of the last 12 years, but the week after Memorial Day has been mediocre with the Down 7 of the last 14 years. Monday before Triple Witching has been bearish lately, with the Dow down 8 of the last 13, Triple-Witching day also has not been strong. Triple-Witching week can be a reliable indicator of overall market health. It is often up in bull markets and down in bears. The week after has been atrocious, with the Dow down 11 in a row and 18 of the last 20. Finally, the last day of the second quarter is rather bearish: down 14 of the last 19 on the Dow and five straight on NASDAQ.