S&P 500 rally faces test from weak seasonal trends, says SentimenTrader

The S&P 500 .SPX is approaching a historically weak seasonal period according to SentimenTrader's Jay Kaeppel.

The index has climbed more than 15% since early April and hit a record high on June 2. However, historical data show that the period from late July through mid-October has been among the market's weakest stretches, Kaeppel said.

While investors can draw either bullish or bearish conclusions from the data, Kaeppel said those who have become increasingly optimistic during the rally may want to temper expectations in the months ahead.

Unfavorable seasonal patterns and elevated investor optimism can leave stocks susceptible to pullbacks or prolonged periods of range-bound trading, he said.

"In other words, an 'investor' might consider raising some cash as a hedge, or plan to do so if price falls x%, or drops below a moving average, etc. A 'trader' might explore ways to play the short side of the market, i.e., index futures, inverse ETFs, options, etc.," Kaeppel said.