Most of the great traders that we know pay attention to seasonals. Not a little bit of attention but a LOT OF ATTENTION because they are so useful to making profits. When a stock starts following its normal cyclical seasonal pattern, it gives them lots of opportunity to profit from shares in a variety of different ways. Options traders, for instance, love this type of information because it shows the potential change in trend dates with often a high degree of accuracy.
Naturally there are times when stocks don't seem to be following their normal seasonal patterns at all. That's GREAT NEWS whenever it happens because it tells you that something special is going on.
For instance, if a stock normally dips in the third quarter of the year but the share price is heading skywards like gangbusters, that deviation from the expected trend is telling you to investigate further because something fundamentally different is going on .... and that tip-off might be the key to a small fortune. This is another reason why traders and investors even at the large mutual fund and secretive hedge fund houses (who would pooh-pooh this stuff on TV if you asked them) actually follow these things. We even suspect that some houses try to manipulate the market according to seasonal expectations.
The seasonal pattern for a stock allows you to easily identify outlier conditions when something new is going on so that you can jump in early and ride that new trend. Or, the stock can be following the direction of the seasonal but at a much faster rate of price climbing so that when a downturn is expected seasonalwise, our charts can help you to clearly decide when to raise your stops or take profits to protect against a correction.
You can already see there are all sorts of ways that seasonal information can help trading and investing.
But is there a better way to construct seasonals other than just taking all the past years of price history for a stock and finding the average yearly pattern?
We think so. We thought about this issue a lot and determined that every stock fares better or worse under different economic environments. That's the basis of fundamental analysis, but we wanted to put a face on the conclusion through some type of stock market chart. Hence the birth of our "economic factor seasonal charts."
While the pure price seasonal that everyone else uses evens out the influence of different economic environments when the price history is long enough, if we segmented out those different economic environments (or fundamental conditions) and created individual seasonals for just those periods, we'd create stock charts that offered us superior investment information and guidance. They'd help with determining the best times of the year to be buying and selling -- because it affected a company's annual business cycle -- under different economic conditions. Once we started doing this and saw it working so well ... even in the crazy environment we're going through right now ... we decided to create this service.
If you downloaded our free reports you can read about this is depth, but here is our methodology in a nutshell.
First of all, you want to see how a stock normally fares in a regular seasonal or annual cycle. Each company has its own economic cycle, and that's reflected in an annual stock seasonal chart. Next, you want to see how a stock's price behaves under both Bull and Bear markets. After all, many investors switch to certain types of stock when there is a Bear market and favor other types of stocks in Bull markets. Certain companies do well in bullish environments and some do better in bearish environments.
Once you have this Bull/Bear market seasonal information, then you know immediately what shares you should invest in when an economic downturn or recession comes or just a Bear market comes without any sign of a recession. No more guessing, just see what stocks performed best in the past by examining history and determine which months or times of the year were strongest or weakest.
The word "recession" brings up another set of related seasonals as well -- what is the average annual price pattern for a stock not during a Bull or Bear market, but during a classically defined Recession or Economic expansion (with the dates set by the government)? You need to know that if you want to be safe, cut your investment risks, and preserve your capital during a bear market that could last for a long time.
Because those two seasonals are so important, we created several chart books for investors like you to help guide you through situations like 2007-2009. These chart books contain (1) the pure price seasonal (2) the Bull and Bear market seasonals and the (3) Recession and Expansion seasonals for the Dow Jones, S&P100, NASDAQ100 and our sector ETFs.
You can take a look at three of these seasonals below (which we annotated just for the website) which show how a stock behaves differently during different market environments. Note that even during the bear markets and recessions there are still periods when the stock does well:
"Economic market timing" does not just refer to whether we're in a Bull or Bear market, or Recession or Expansion. Some companies' profits, and thus their stock prices, are sensitive to interest rates. Some are sensitive to the general financial environment and others to inflation. All sorts of fundamental conditions are possible that affect company profits and thus stock prices in turn. So we create seasonals for these different fundamental economic conditions as well which we call "factors."
In MBA schools they talk about an analysis technique called "factor analysis" or principal component analysis that teases out or decomposes the contribution that various factors, variables, conditions or environments make in the performance of some variable under investigation. In our case the item under investigation is the performance of stock prices. By building our various Bull/Bear, Recession/Expansion, Inflation Rate Rising/Falling, Interest Rates Rising/Falling, Monetary Conditions Favorable/Unfavorable, etc. seasonals, we attempt to segment out and identify which fundamental factors or market environments actually play a critical role in affecting (company profits and thus) stock prices. Thus we call these charts Factor Seasonal charts.
We use these charts in our forecasting services when the stock prices become highly correlated to any of these economic factor seasonals (and when it makes sense that it should) ... and this is part of the basis of our newsletter forecasts and projections. Every month we look for prolonged bullish or bearish seasonals - that the market IS currently following -- and look to see that the factor seasonals are also supporting that trend that's being traced out.
First, is there a seasonal trend that the market seems to be following?
If yes, do the various different factor seasonals also suggest that the stock will continue following that trend, and if so for how long?
That's the basis of our monthly newsletters. It combines both fundamental and technical analysis and turns that combination into a visual chart where investment and trading decisions just pop out at you.
The fact that we have computed so many different types of price, political and economic factor seasonals is why our information has become so valuable to trades and investors. Fundamentalists, contrarians and value investors want to see the strong and weak times of the year under the current fundamental conditions. Traders, momentum investors, and option players want to know the likely trends on a short term basis so they can restrict their trading to the likely stock market winners. There's no sense trading a stock if you don't have a secure idea on what the epxected trend is.
No one else computes these charts to provide you with the expected trends, and so no one else is able to find turning points in the market like we can.
Furthermore, with enough stock history you can pull apart and really see whether inflation or interest rates or any other economic condition really has an effect on stock prices and this can help in the initial investment decision in the first place. There's no reason as a fundamental analyst to just jump in and buy a stock without first looking at all the timing indications and influences revealed by a variety of factor seasonal charts.
Once you have a variety of factor seasonal information and see that stock prices are closely following the pattern of a particular factor seasonal when it's in that market environment, you have a key to profits that we deliver to you on a monthly basis. And when many of these various seasonals (price seasonals, economic seasonals, and political seasonals) all line up with the same conclusion -- that's what we report to you to use in for your investment decision making!
On the other hand, if a stock isn't showing any strong tendencies to follow its annual seasonal price pattern or if the factor seasonals don't show fundamental support to the annual seasonal story, then there's no reason to get risky and report on that stock. We try to be as risk adverse as possible in only reporting on trends that seem to be followed and which have underlying fundamental support.
If you're interested in the explanations, please sign up on the top right for a free report showing how this works in detail.
A simple example of two economic factor seasonal charts for Citigroup, a banking group whose profits are affected by interest rates and inflation, can be seen below proving that the fundamental environment does affect a stock's price behavior and outcome ...
Our charts are so simple that you can easily immediately notice the safest and most dangerous times of the year to be investing or trading in any stock and by monitoring prices in real time, you can determine which factor seasonal should become the projection line and whether any or all of the seasonals should be ignored: