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Seasonality Unveils Bottom: Market Veteran's Advice on Navigating the Search

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Seasonality and Other Factors Impacting the Markets: Insights from Market Veteran Tom McClellan

Understanding Oversold Conditions and Their Significance

Market veteran Tom McClellan, editor of the McClellan Market Report, sheds light on the concept of oversold conditions. While it is true that markets are currently reaching notably oversold levels, McClellan emphasizes that being oversold is a condition, not a signal. The timing of when this condition will matter is uncertain. Although oversold conditions are important in the long run, their immediate impact may not align with expectations.

Volatility, Volume, and the Search for a Bottom

McClellan notes that other factors typically considered when determining a market bottom, such as volatility and volume, do not seem to be signaling a bottom at present. Volatility levels remain relatively low, and volume is not unusually heavy. This observation raises questions about the factors contributing to the current market weakness.

Seasonality as a Key Market Factor

According to McClellan, seasonal factors play a crucial role in market dynamics. The current period represents the seasonally weakest time of the year. McClellan identifies two bottoms in this bottoming process, with the first occurring now and the second expected around October 10. The initial bottom represents a downward movement, while the second bottom marks the upward reversal. McClellan explains that part of the bottoming process involves inducing discouragement among market participants, creating a sense that another bull market may never materialize. Once this sentiment is widespread, the market can begin its ascent.

Market Weakness and Bond Yields

While seasonal factors contribute to market weakness, McClellan highlights rising bond yields as a significant concern. Despite expectations for bond yields to calm down, McClellan anticipates a substantial increase in long-term bond yields until November. However, he believes the market will somehow be able to overlook this development. Although rising bond yields are currently cited as coincident factors in market news, McClellan suggests they may not be directly related to the market's performance.

Psychological Factors and Market Behavior

McClellan attributes seasonal weakness to psychological factors. As daylight hours shrink, individuals tend to become more conservative and seek to reduce risk by selling investments. This pattern, observed repeatedly, was historically explained by farmers harvesting crops and facing liquidity crunches. While farming's contribution to the economy has diminished, seasonal factors continue to influence market behavior.

Additional Factors Influencing the Markets

McClellan points out various factors that may impact the markets, including the possibility of a government shutdown and the restart of debt repayments on student loans. These events generate negative sentiment and uncertainty, reminiscent of the impact of the Deepwater Horizon oil drilling rig explosion. McClellan draws parallels between the resolution of the oil rig issue and the potential resolution of government disputes, highlighting the psychological impact on market sentiment. Additionally, the resumption of tax payments in California, following an extension, could cause ripples through the banking system as individuals settle their tax obligations. In conclusion, McClellan's insights shed light on the interplay between seasonal factors, psychological influences, and various events impacting the markets. Understanding these dynamics can help investors navigate market fluctuations and make informed decisions.

Implications of Market Dynamics on New Business Formation: A Perspective from Tom McClellan

The Impact of Oversold Conditions and Market Volatility

Tom McClellan, a seasoned market expert, offers valuable insights into the concept of oversold conditions and their potential implications for new businesses. While markets are currently oversold, McClellan emphasizes that this is a condition, not a signal, and its immediate impact may not be as expected. For new businesses, understanding this dynamic could be crucial in shaping their market entry strategies and risk management approaches.

Seasonality: A Pivotal Market Factor

McClellan highlights the role of seasonal factors in market dynamics, which could have significant implications for businesses planning their launch or expansion. The current period, being the seasonally weakest time of the year, may present challenges for new businesses. However, understanding the bottoming process, characterized by an initial downward movement and a subsequent upward reversal, can help businesses strategically time their market entry or expansion plans.

Market Weakness, Bond Yields, and Business Strategy

While seasonal factors contribute to market weakness, McClellan identifies rising bond yields as a significant concern. He anticipates a substantial increase in long-term bond yields until November, a development new businesses must factor into their financial planning. Despite the market's ability to overlook rising bond yields, new businesses need to consider this in their risk assessment and financing strategies.

Psychological Factors and Market Events: Influencing Business Decisions

McClellan also underscores the influence of psychological factors and market events on market behavior. As daylight hours shrink, individuals tend to become more conservative, impacting market dynamics. Additionally, events such as potential government shutdowns and the restart of debt repayments can generate negative sentiment and uncertainty. For new businesses, understanding these influences can help shape their customer engagement strategies and risk mitigation plans.
Story First Published at: https://www.cnbc.com/2023/09/28/to-find-bottom-one-market-veteran-says-let-the-seasonality-play-out.html
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