By Ron William, CFTe, MSTA

Seasonality Danger Zone Ahead

A sea of red hit markets early this week, notably on the NASDAQ where every single stock closed in red for the first time since March 2020. The technical review of S&P500 highlights its prior retest and failure under the strategic 200-day trend average, which is now rolling over (Figure 1).

S&P 500 Rollover Under 200-Day Trend

Ignited by the fastest inflation and interest-rate hike in a generation, triggering another reassessment of market forces ahead. CPI advanced by more than forecast in August (Figure 2), the single highest monthly print in their dataset which starts in 1983. This highlights the reality gap of market consensus, marked by falling inflation expectations, which is still negative for markets, based on the slower growth and recessionary concerns (chart insert, top right). Although, in terms of the big picture, long-term inflation remains structural and will likely trigger waves of volatility akin to the 1970s market regime.

Inflation Pressure Weigh

Recall that our timing models predicted in our previous FSC Blog a “return to the traditional [negative seasonality] pattern, with risk of a worst performing month in June and September”. The early part of this “Sell in May” (SIM) pattern broke past drawdown records in June and warned of a typical three-stage corrective wave. This is so far aligned with our “Roadmap signature” of a price fall, oversold rally, followed by the rest of the fall. In fact, the mid-summer rally during July and August 2022 was on par with the largest average bear-market rally of 23%, found in both the 2000-2002 [TMT bubble burst] and 1929-1932 [Wall Street crash]. Returning to the SIM pattern, remember the “strongest probabilities favour a market peak-drawdown process in the month of August”.

It triggers the well-known autumn (Q3) Fall-crash cycle that traditionally unfolds between September and October. Further analysis also tells us the month of September is worse if things are already bad going into it! (Figure 3). A case in point is if markets are below their 200-day trend or/and YTD performance is below -15%. Unsurprisingly, the latter example has never led to a positive outlier scenario.

Sept. Worse of Things Are Bad Into It

Moreover, sentiment data based on CFTC positioning warns of a “Big Short” trade at historic extremes (Figure 4). Could this be a contrarian signal, or perhaps evidence of smart money predicting further downside risk ahead? Net position on the E-mini S&P500 futures is at 250k contracts, the largest net short position in about two years.

Big Short Positioning at Historic Extremes

Closer examination shows the market tends to underperform in the short-term. One month after these occurrences, the S&P500 was negative more times than positive, with a median return of -0.87% and average of -0.37%. The table below (Figure 5) shows maximum drawdowns over the timeframe of 1-12 months. Results are dispersed across multiple cycles but do include an important risk scenario of the 2008 GFC which fell over 40% in the next six months.

Drawdowns After CFTC Hits 250K Threshold

Look at the charts, here and now, an impulsive break under the June low of 3640 reactivates the “Minsky Crash Pattern” (Figure 6), risking further downside into the pre-pandemic zone between 3400-3260. Continue to stay alert, while adapting to the changing market regime and seasonal danger zone ahead!

2008 GFC Analog: Three Stages, Fall, Rally, Rest of Fall

Thank you to all FSC members for all your kind feedback and insightful questions on our new FSC Blog market series! Welcome more interaction on


Ron William, CFTe Bio

Ron William, CFTe, is a market strategist and educator/mentor with more than 20 years of experience working for leading macro research and institutional firms, producing tactical research and trading strategies. He specializes in global, multi-asset, top-down framework, grounded in behavioural technical analysis, driven by cycles based on the "Roadmap" signature model of veteran market technician Robin Griffiths, published in his book Mapping the Markets.”

Ron also applies a "market & mind" approach at IntensiChi, using the latest techniques in behavioral-risk models and neuroscience sourced from expert groups. He further supplements with mentoring/coaching, trained by the International Coaching Federation (ICF), and teaches a regulatory approved masterclass in Applied Behavioral Science, with investment, private banks and CFA Societies.

Ron's primary work, as part of his current institutional market advisory firm (RWA), acquired global industry recognition as winner of “Best FX Research” in 2020. Financial media programs and industry publications regularly feature his market insights, including “Is the big cycle about to turn?”, predicting the 2020 crash and alerting the “Minsky paradigm” of 2020 H2-2022.

Driven by high-integrity education, Ron serves as part of the education committee of the International Federation of Technical Analysts (IFTA), Development Director at the Foundation of the Study of Cycles (FSC), Head of SAMT’s Geneva Chapter, and an honorary member of ESTA. He is also a visiting lecturer at universities, active guest speaker for the CFA, CAIA and CISI, and senior teacher at colleges offering an accredited diploma in trading and investing.