Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Why Stock Market Seasonality May Be Critical in 2015

Stock-Markets / Seasonal Trends Mar 20, 2015 - 06:17 PM GMT

By: Sy_Harding

Stock-Markets

With its FOMC statement, the Fed provided the market with what it wanted to hear.

They removed the ‘patience’ phrase as expected, but replaced it with a similar assurance that there is no set timetable for rate hikes, that it will continue to be in no hurry. “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”


Well, we know that inflation is moving dramatically in the opposite direction and showing no signs of bottoming, let alone climbing back to 2% anytime soon.

The question now is how long the market’s relief will last before investors realize the Fed’s reluctance to act stems from conditions not normally bullish; a slowing economy, declining earnings, lack of inflation, all while the market is overvalued by traditional measurements.

Perhaps we can get a clue from the market’s history of annual seasonality.

The market has a very long history of making most of its gains in the favorable season between October and May each year, while if there is to be a substantial correction it most often takes place in the unfavorable season of May to October.

The pattern is so consistent that academic studies show that a strategy of investing only for the favorable season and standing aside in cash for the unfavorable season, significantly outperforms the market over the long-term while taking roughly only 50% of market risk.

Like any strategy, particularly including buy and hold, it does not work out every year. Sometimes the decline in the unfavorable season is only minor, and sometimes the market makes further gains in the unfavorable season.

However, over the long-term it works out quite dramatically, doubling the market’s long-term performance by avoiding serious corrections and most of the down-legs in bear markets.

In addition, when it does not work out for several years, it almost always comes back quite dramatically, making up for its absence. (Otherwise, it would not have its history of so dramatically outperforming the market over the long term).

Since this market has gone for an unusual length of time, since 2011, without even a normal 10% correction, seasonality has lost its importance the last several years, pretty much ridiculed by perhaps short-sighted analysis.

That is understandable, since in each of the last three years, the market has had only minor summer pullbacks and standing aside for them was non-productive.

However, can we depend on the unfavorable season in 2015 being as benign?

We are in another situation where the economy is slowing after the Fed allowed a QE stimulus program to expire. The last time that happened was in 2011.

Here is a reminder of what happened in 2011 when the economy was similarly slowing. The S&P 500 plunged 21% from May to October, even though at that time investors were also confident the Fed had its back via the ‘Bernanke Put’, and would not allow the market to decline.

The Fed did allow it to decline, and did not come to the rescue with another round of QE until the S&P 500 was down 21% in October, on the edge of entering a bear market.

It’s interesting that in 2011, like this year, the market was also down in February and to mid-March. That time it recovered to a new high on May 1 before collapsing.

Is that also the best we can hope for this time?

In the interest of full disclosure, my subscribers and I remain bullish, 100% invested in the Dow etf DIA in our Seasonal Timing Strategy, and 90% invested in our non-seasonal Market-Timing Strategy portfolio. However, as I have said in recent columns, bullish – but watchful, still expecting more profits from downside positioning than from the long side later in 2015.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2015 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules