What will happen in July?

As the month of June closes and currencies have rolled over to September contract, it is a good time to look at what is ahead for the month of July. What sort of month can we expect? Is it going to be an up month? Is it going to close higher than its open or lower? The answer varies from one currency to another. We will limit our analysis to Swiss Franc Futures (SF-SpotV:CME).

We can look at the charts from many perspectives, for this analysis we are using the monthly bar chart to determine the characteristics of the month of July year after year.

Did the July monthly bar end up being up month, down month, inside month or an outside month? This is measured by comparing the high of the monthly bar with the high of the previous month and the low of the monthly bar with the low of the previous month. July had a thirteen up bars, fourteen down bars, two inside bars and five outside bars. This is not a very conclusive pattern.

Let’s check if the month closed lower than its open (bearish) or higher than its open (bullish). Out of the thirty four years of data we have, the month of July had a lower close on twenty of them. In other words if you short sold as the month opened and covered your short as the month closed, you would have been profitable twenty out of thirty four months. This is a little more conclusive than comparing bars.

Table 1 – Swiss Franc Futures, July Statistics

Lastly let’s analyse the Primary Turning Points that happened in July, year after year. Primary Turning Points are Swing Tops and Swing Bottoms on the Monthly Swing Chart. There were seven Primary Turning Point Bottoms in the month of July: 1976, 1991, 1993, 1998, 1999, 2001 and 2005. There were five Primary Turning Point Tops in the month of July: 1980, 1996, 2002, 2004, 2008. What happened after each one of these tops and bottoms?

1976 Bottom: up month, inside month, two up months then a down month
1991 Bottom: two up months, inside month, two up months, outside month
1993 Bottom: two up months then a down month
1998 Bottom: three up months then a down month
1999 Bottom: an up month then a down month
2001 Bottom: two up months, an inside month then a down month
2005 Bottom: an up month followed by an outside month

1980 Top: a down month then an up month
1996 Top: an inside month, eight down months then an up month
2002 Top: a down month then an outside month
2004 Top: a down month, an inside month then an up month
2008 Top: four down months, followed by an up month

The conclusion we can draw from the above is that if July gives us a strong top, on average the fall that follows is 3.4 months and if July gives us a strong bottom, on average the rise that follows will be 2.7 months.

History repeats

Sinan Koray