The first question that comes to your mind is that are these seasonal cycles real in the markets and how you can time your trading with these cycles? The stock market is full of sayings like, Sell in May and go away, as well as the conventional wisdom about the, summer rally, the Santa Claus rally, the dark days of autumn, the presidential cycle, and so on.
Markets are about big banks, insurance companies, hedge funds, sovereign wealth funds, governments, mutual funds and individual investors creating a very diverse and dynamic environment. Markets are always changing; money keeps on moving in and out of stocks, bonds, currencies, commodities and so on with the stroke of a mouse and speed of electron thousands of times every day.
Have you heard about Nicolas Darvas a ballroom dancer who in early 1960s made a fortune in around a year and a half with his Darvas System? He had made $2 million in stocks. In todays money that is something like $20 million. He was a legend in his times. In his days, there was no online system. He would contact his broker via telex from far flung parts of the world where he would go for performing. In 1960s when big Wall Street players would go on summer off, volume would dry up and the market tended to have a slight upward bias. Now, with the high speed internet connection and satellites, any money manager can stay in touch with the market on his laptop or mobile phone even on family vacations in a remote island of Pacific! Life has changed. Technology has revolutionized many things in our lives. Still with such fast action, there is some seasonality in the markets that you should know if you are trading these markets.
With globalization and the ability to communicate in real time, money has started to move in a less predictable fashion. This has altered the trading patterns. What used to work yesterday does not work today. In the past markets were a whole lot less complicated. Most of the money moved between US and Europe.
At the same time, you should be aware that there are times when the markets do tend to follow these seasonal patterns. You shouldnt rely on seasonal analysis as your main method of trading stocks, bonds, currencies or commodities.
During the last 50 years the stock markets had an upward bias. It meant if you had bought stocks and kept them for a few years, there would have been an invariable price appreciation. No doubt, minor downturns were always there in the market but the overall trend in the markets had been up. Historically, September tends to be the toughest month of the year. For the past 50 years, the average return on S&P 500 for the month of September has been around 0.6%. Dow Jones Industrial Average has even preformed worse with return of -1%. Now stock markets have a certain tendency to move in certain directions during certain months of the year. This general seasonal trend is a good one to keep in the background of your mind.
Holidays means party time. Everyone wants to enjoy holidays. Holidays means investors are in a cheerful and exuberant mood and the money managers want to show a good performance at the end of the month. September has been traditionally a bad month and November has been a good month for the bulls. The S&P 500 Index has the general tendency to rise in the month of November. December is another typically strong month. December is the month of holidays and the end of the year.
Author Resource:
Mr. Ahmad Hassam is a Harvard University Graduate. Try This 1500 Pips A Day Forex Signal Service! Know These Candlestick Patterns !
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