Ready to dive into the stock index markets and hunt for opportunities? July is shaping up to be a pivotal month for traders eyeing the Nasdaq and Dow Jones indexes. Despite the noise and negativity swirling around, historical seasonal patterns suggest a potential rally is on the horizon. Let's break down the three seasonal buying patterns for these indexes, explore their correlation with the S&P 500, assess the market's current mood, and equip you with strategies and assets to capitalize on this window. The challenge is clear: Can you identify the opportunity and take action?
Three Seasonal Bullish Patterns for July
Both the Nasdaq and Dow Jones exhibit three distinct seasonal patterns that historically align with bullish price action in July:
- Traders, heads up! Historical data reveals a prime opportunity for the U.S. stock market around the Fourth of July holiday. While not every year yields gains, the market has consistently shown a modest positive bias during this period. More often than not, the days surrounding Independence Day bring a lift to stock prices, making it a historically favorable time to position for potential upside.
- Opportunities in the U.S. stock market during the first half of July. As the second quarter wraps up, fresh capital often floods into the market, fueling a strong start to the second half of the year. This influx of new money frequently drives a modest positive bias around the Fourth of July holiday.
- The mid-year earnings season, which typically occurs in late July, could set the stage for significant market moves. The Nasdaq, driven by tech giants such as Apple and Microsoft, often sees robust earnings reports that spark substantial gains. The Dow also benefits from strong industrial and financial earnings, riding the same wave. These reports not only can fuel immediate rallies but also offer critical insights into market trends for the months ahead.
These patterns aren't guarantees, but their consistency over decades makes them worth watching.
S&P 500 Correlation: A Likely Co-Rally
The S&P 500 moves in lockstep with the Nasdaq and Dow Jones, boasting correlations of 0.97 and 0.94, respectively, over the past 180 days. Source: Moore Research Center, Inc. (MRCI) Inter-Market Correlations page. This tight relationship means that if the Nasdaq and Dow rally in July, the S&P 500 is highly likely to follow suit, driven by similar seasonal factors—such as a positive holiday buying bias, fresh capital for the start of the second quarter, and earnings season—offering traders another avenue to capture gains.
Negativity Persists, Yet Prices Climb
Despite bullish seasonal signals, market sentiment is sour. Geopolitical tensions in the Middle East and fears of inflation keep headlines grim. Social media and financial forums buzz with bearish predictions, yet the Nasdaq and Dow continue to grind higher since the April 07 lows. This disconnect highlights a key lesson: markets don't move solely on sentiment. Prices reflect significant buying, earnings strength, and technical patterns—factors that often drown out the noise. Traders who focus on data over headlines stand to benefit.
The Power of a Trading Strategy
Guessing market moves is a recipe for losses. A strategy rooted in seasonal patterns, technical analysis, and/or fundamentals eliminates the guesswork. For July, a simple approach could involve buying index ETFs on dips before the Fourth of July and holding through mid-month earnings. It's up to each trader to use their due diligence and risk management skills before entering a trade like this to confirm it aligns with their trading style. Discipline matters—make sure to set stop-losses to manage risk. A strategy keeps emotions in check, letting you trade your plan, not the panic.
Bearish and Bullish Fundamental Factors to Watch
Bearish Risks:
- Geopolitical Escalation: Rising tensions in the Middle East (closing the Strait of Hormuz) could spike oil prices, pressuring stocks.
- Weak Earnings: If tech giants like Nvidia miss estimates, the Nasdaq could falter, dragging the Dow and S&P 500.
Bullish Catalysts:
- Strong Corporate Earnings: Robust Q2 reports, especially from tech and financials, could fuel the rally.
- Inflation: If inflation ticks down, this would ease the path for the Fed to cut rates, potentially leading to a surge in growth stocks in the Nasdaq, which could in turn lift all three indexes.
Assets to Trade the Seasonal Window
Traders have multiple ways to play the July rally:
- ETFs, such as QQQ (Nasdaq-100), DIA (Dow Jones Industrial Average), and SPY (S&P 500), offer diversified exposure with low fees.
- Futures: E-mini Nasdaq (NQ), micro-Nasdaq (NM), Dow futures (YM), micro-Dow futures (YR) will allow leveraged bets on index moves, ideal for experienced traders.
- Individual stocks, such as tech leaders like Nvidia (NVDA) or blue-chip companies like Boeing (BA), tend to align with the seasonal trends of the Nasdaq and Dow.
- Call Options: Buying near-term calls on QQQ or SPY can amplify gains with defined risk.
Select assets that align with your risk tolerance and account size, and always employ proper position sizing to manage your investments effectively.
Moore Research Center, Inc. (MRCI) July Stock Index's Seasonal Buy
In a previous article for Barchart, "The 2025 Nasdaq Bear Market and Its Remarkable Rebound: Will the Upcoming Seasonal Window Propel It to New All-Time Highs?" I described a seasonal buy for the Nasdaq that has had a 100% occurrence rate for the past 15 years. Currently, the market has been moving sideways, perhaps waiting for the upcoming seasonal patterns to add a boost.
As a crucial reminder, while seasonal patterns can provide valuable insights, they should not be the basis for trading decisions. Traders must consider various technical and fundamental indicators, risk management strategies, and market conditions to make informed and balanced trading decisions.
In addition to the seasonal pattern in the article, there are three upcoming seasonal buys to support the potential for higher prices in July.
MRCI research has identified a trifecta seasonal pattern. What makes this trifecta significant is the high percentage of occurrences in two different markets. For markets to exhibit this kind of seasonality for 15 years, it would appear that a major fundamental event must have caused it. Leading one to believe the seasonal pattern has a good chance of repeating, but still not guaranteed.
Source: MRCI
The first, MRCI research has found that the Dow Jones Index has closed higher on approximately July 22 than on June 28 for 15 of the past 15 years. Additionally, seven of those years never experienced a daily closing drawdown.
Source: MRCI
Second, MRCI research has found that the Nasdaq has closed higher on approximately July 29 than on July 01 for 14 of the past 15 years. Additionally, five of those years never experienced a daily closing drawdown.
Source: MRCI
Last, but not least, MRCI research has found that the Dow Jones Index has closed higher on approximately July 22 than on July 06 for 15 of the past 15 years. Additionally, four of those years never experienced a daily closing drawdown.
In closing…
July offers a compelling setup for the Nasdaq, Dow Jones, and S&P 500, driven by three fundamental seasonal patterns. And MRCI's seasonal patterns, which have historically delivered gains. Despite the market's negative tone, prices continue to climb, rewarding those who adhere to data-driven strategies. Whether you trade ETFs, futures, options, or stocks, the opportunity is there—but it won't wait. Do your due diligence: study the patterns, backtest your strategy, and manage your risk. The market doesn't care about your fears or hopes—it rewards action. Are you ready for these opportunities?
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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