Cycles  |  FEB 2006

Seasonal Patterns In The Markets by Robert Steelman

Stocks & Commodities V. 24:2 (72-77): Seasonal Patterns In The Markets by Robert Steelman We are creatures of habit, and that affects how we approach the markets. There are many popular beliefs about how to make money in the financial markets, some popular and some not. Here’s a trading method that, though it ranks low in popularity, produces results that you can’t ignore. By the end of this article, you will have a glimpse into the method and even have a concrete trading plan of how to follow it. All you need is one tool, something anyone could pick up anywhere, and it costs only a few dollars: a calendar. My focus is on seasonal patterns, mainly because people are creatures of habit and tend to do certain things at certain times, and this behavior affects the markets. There are quite a few of these seasonal patterns, some lasting many months and some only a day. IT’S ALL ABOUT PATTERNS Seasonal patterns are actually quite well-known to commodities traders, but are much less frequently applied to stock market indexes. For example, heating oil tends to be more expensive at the approach of winter and less when spring is around the corner. But a seasonal phenomenon does occur in the stock market as well. For whatever reason, on some days of every month everyone and his brother goes out to buy some stock and, in the process, drives up the market. On other days the opposite occurs; everyone’s out there selling their holdings and driving the prices down. With that in mind, I will only be looking at short-term phenomena and devising a trading strategy based on them using data going back 20 years. For comparison purposes, I will use the advance made by the Standard & Poor’s 500 index during this time, which would be the same as the buy & hold strategy. Over the course of 20 years (January 1, 1985, through December 31, 2004), the advance comes to 1,035 points. This period included 5,048 trading days (this, of course, excludes weekends and holidays). This means the S&P 500 made about 0.2 points per trading day. Remember that figure as you examine each of the seasonal patterns.

by Robert Steelman