Options traders always contact us asking if we can make forecasts to the day as to when a trend change is likely to occur in share prices. We always get this sort of question because a day can make a big difference in profits when playing options.
First of all, "Yes" the seasonal information, when many charts align, often gives flex point, turning point or short term "change in trend (CIT)" projections that are often good to the very day, though usually they are off by a day or so to the side.
Why? Let's not be silly and expect this to work to the day always and ever. We're simply looking for an edge and not certainty because certainty is impossible in the financial markets. So let's kill that false idea you can have absolute certainty and exactness always and ever. Sometimes it happen many, many, many times in a row but we never set ourselves up to expect it. We're just looking for information we can use to help with investment profits.
What you need to know is that the standard price seasonals we produce are "calendar seasonals," meaning they are computed by taking every same day of the year and averaging all such prior days together. The computational process is a little more complicated than that, but I'm simplifying it to make it easier to bring out some principles. To plot a point for January 1st on our charts, we take all prior January 1sts in our database and average them all together. For January 2nd, we find all other January 2nds and average them together. For January 3rd or November 18 or June 12s we take all other January 3rds or November 18s or June 12s or whatever and average them together to produce one point.
Now this is where it gets hairy. There are alternative ways to do this, and these other ways sometimes produce the turning points exactly whereas the calendar method may not. Let's get away from January and talk about April to make an easier example. Normally for the April 1st seasonal we would take all past April 1sts and average them together to produce a single point on the chart.
But wait a second ... April 1st is a Wednesday for 2009. So another way of doing this might be to forget about the date of 04/01 but take all Wednesdays of the first week of the month and average them together. We might take all Mondays of the first week of the month and average them together, all Tuesdays of the first week of April and average them, all Wednesdays of the first week of April and average them, all Thursdays of the first week of April and average them, all Fridays of the first week of April and average them... all Mondays of the second week of the month, all Tuesdays of the second week of the month...all Thursdays of the fourth week of the month, all ... We basically line up the prices not by the date but by the day of the week in the month.
This type of seasonal would tend to adjust for weekends and holidays that are not defined by a date, such as every 15th of March (03/15), but by the day of the week in the month. Government announcements are sometimes set this way. Thanksgiving, for example, is also set this way as well. Thanksgiving is every fourth Thursday in November, which is not a calendar date but a day of the week in the month of November. This type of seasonal tends to reflect what goes on in options expiration land, such as the Triple witching days being the third Friday of March, June, September and December, so this type of seasonal might be more useful to options players than the regular calendar seasonal that most people report.
There's yet another seasonal we can construct that is different than the above mentioned "day of the week in the month" or calendar "date of the month" we normally use. Various traders have found that the trading day of the month makes a big difference in how stock prices perform. Shares tend to go up at the beginning and end trading days of the month (because that's when cash pours into the market to buoy shares a bit). However, the first trading day of the month is not necessarily the 1st of the month or a Monday. It could be any day of the week and it could be the 1st, 2nd, 3rd and so on. So this type of seasonal offers a little different variety than the calendar or day of the week in the month seasonal, and may be more sensitive to money flows.
In any case, this type of seasonal may be of use to options traders as well near special times of the month, especially the beginning and ending since they have a statistically tendency to outperform. We've produced special calendar timing ebooks with this information.
As an example for August 2009, August 3 is the first trading day of the month. So in the "Trading day of the month seasonal" we would not average together all August 1sts, but just the first trading days of all previous Augusts. Sometimes the first trading day of the month is a Monday or Tuesday or Wednesday or Thursday or Friday. In the "Day of the week in the month seasonal" the day of the week would matter, but not for this seasonal. All we care about is whether the trading day is number 1,2,3,4,5,.... Usually we don't see more than 22 trading days in a month.
A magnified example of these two seasonals that aren't based on the calendar date can be seen below and you can notice that the peaks and bottoms don't always line up, which often explains why the seasonals are off by a day or so to the side. Many options traders consider this super secret information we are revealing since it means lots of money to them, but to us it is simply ordinary information that we find and present to you in the course of our research. Naturally you can obtain chart books with this information (which is recomputed every year because of the calendar changes) from our products and services page.
These three seasonals usually tend to overlap somewhat, but when they don't those tiny differences can mean a lot to options traders. It often accounts for why a CIT (change in trend) is a day or so earlier or later than expected according to the calendar seasonal. Perhaps we'll create a service one day to monitor all these, but presently we don't bother to report on them because it's just too time consuming to look for all these tiny wiggles. It would be an expensive service to do this and we don't like the odds of accuracy because we're looking for big sustainable trends that the seasonals tend to suggest or confirm. From our own experience, that's where the really big money is. If you are interested in having this information available for your trading, we produce chart books of these seasonals which you can obtain from the products page.
You need to know that there is one more seasonal that we produce that may prove useful to you. We are actually quite proud of this seasonal as we feel it may explain why cycles sometimes invert unexpectedly. That seasonal is a "lunar calendar seasonal."
The calendar seasonals you are used to seeing everywhere are are all based on our Western Gregorian calendar. That calendar is actually a sun calendar in disguise. What this means is that our Western calendar is so constructed that on every same date we will find the sun at the approximately the same place in the sky. Every August 5, for instance, the Sun is always within a degree of 12 degrees Leo. Every October 13 it's always within a degree or so of 19 degrees Libra. The reason we can't be more precise is that every four years we add an extra day to the calendar - February 29 - and that throws off the repeatable precision by about a degree.
With a lunar calendar, the date has nothing to do with the sun's place in the heavens but with the phases of the moon. Plenty of scientific research studies have shown that people's physical body cycles and emotions fluctuate based on the moon's phases. We've even seen studies showing stock prices affected by the moon, too. So what we do -- and we reference this in our projections when the market ends up more highly correlated to this seasonal rather than the western calendar seasonal - is compute a price seasonal by lining up past stock prices according to a Chinese lunar calendar time scale and reporting it when appropriate:
Thus, by creating a seasonal that is based on the complicated Chinese lunar calendar, we often find an annual pattern that the market is more correlated to than to the western calendar seasonal. Not in all cases, but in some cases this can be helpful to options traders who know how to use this secret because there are indeed times where the market is following the lunar calendar seasonal and NOT the western calendar seasonal at all. These lunar calendar seasonal charts (a sample lunar calendar seasonal overlaid on top of the western calendar seasonal) are also available in the chart books mentioned.
All in all we just wanted to let you know that there are many ways of computing seasonals for options traders who are worried about the exact days of entry and exit for options. For simplicity sake we just line up every Jan 1st, January 2nd, January 3rd and so forth and compute the seasonals from there for our regular charts. However, if you are really worried about investment timing to the day and think that these other methods are of value, then you might want to obtain one of our chart books for a market of interest to see if they fulfill any of your needs.
Oh, one more thing ...
It's a bit of a sales talk but we feel it's absolutely true. On our products page is a course for trading options that is absolutely the very, very best options trading course we have ever seen in our lives. It's about how and when to write options in various combinations -- AND HOW TO ADJUST YOUR POSITIONS WHEN THINGS GO WRONG (which no one teaches) -- that can turn into a very steady stream of income for you for years into the future ... as long as they allow people to write options.
You don't need seasonals at all to be able to do this, but when we realized that our seasonal information would help you do this all so much better to amplify profits further, we just had to pick up the resell rights to this course and make it available to you. It's spectacular. If you trade options at all or ever intend to, this is the one course you should get that is worth many, many, many times it's economical price. And that's all we're going to say about it. If you want to learn more, please read this. |
