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Monday 29 December 2008Stock Market Seasonality and Emini Trading
When it comes to my Emini trading, stock market seasonality analysis is dangerous. Yes, I do agree that seasonal patterns exist:
- Investors take profits at the end of March to pay their taxes in early April
- Investors close out losing positions in September to claim tax losses
- Companies downgrade earnings in September when missing end of year forecasts
- Professionals re-balance portfolios at quarter- and month-end
- New investment funds tend to be invested at the start of the month
- Investors are more bullish leading into holidays, etc.
However, can you use the resulting stock market seasonality patterns to trade? I’m sure many successful investors and traders do. For me, it biases my judgement and breaks Rule Number 1: "Trade what you see, not what you think"
Stock Market Seasonality - Interpretation 1 (Emini weekly)
A few years ago I did a lot of analysis on stock market seasonality. One of the results was the Weekly Seasonality line plotted on the Emini chart above. It takes S&P data from 1970 to 2003, de-trends it and calculates the underlying stock market seasonality.
Three broad trends, anticipated by the seasonality pattern, did exist last year. The early part of the year was strongest, the middle was weakest and the end was flat to up.
Stock Market Seasonality - Interpretation 2 (Emini weekly)
However, when looking at smaller portions of the seasonality pattern I can’t find much of a match. For me, I would rather focus on my basics: cycles, trends and volume.
Good luck with your Emini trading.
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