U.S. Financial seasonality, fact or Folklore?

I do not follow seasonality because from past experience I find in a bull market seasonality will have you buy - sell higher - and buy back even higher. In a bear market seasonality will have you sell - buy lower - and sell even lower.

I clipped this from DVTechtalk January 18, 2010 – Thoughts on Seasonality in the U.S. Financial Services Sector. According to a recent seasonality study on the U.S. Financial Services sector completed by Brooke Thackray, the best time to own the U.S. Financial Services sector is from January 19th to April 13th. Average return per period from 1990 to 2008 was 4.1% versus a gain of 1.3% for the S&P 500 Index. The annual recurring reasons for the trade include the reporting of encouraging fourth quarter earnings and favourable outlooks offered in annual reports and annual meetings about first quarter and 2010 results. The seasonal trade is not recommended this year:

Well, I can see why DVTechtalk does not recommend the trade this year – this seasonal trade has never worked! A simple buy-and hold from January 1995 has returned 72% (excluding dividends) and the seasonal trades actually lost money (-16%) over the same period. Note during the 1995-1998 and 2003-2007 advances the tendency to sell high and buy back higher. The only big call was the sell in April 2008 but once again one could also argue that in April - May 2008 you could have sold anything and been correct. Also as of now the seasonal model has missed the great May 2009 to January 2010 35% recovery having sold last April.

At the moment the fact-or-folklore question needs more study – so over the next few weeks let us audit a few more seasonal trades before May when we all go away.

Energy seasonality, fact or Folklore?

I do not follow seasonality because from past experience I find in a bull market seasonality will have you buy - sell higher - and buy back even higher. In a bear market seasonality will have you sell - buy lower - and sell even lower.

I clipped this from DVTechtalk January 18, 2010 - Thoughts on the Seasonality in the Energy Sector. According to Thackray’s 2010 Investor’s Guide, seasonal influence on the U.S. Energy sector is from February 25th to May 9th. Brooke also has completed other studies in the sector and has found that seasonality in the Canadian energy sector, U.S. Oil Services sector and the U.S. Oil Exploration and Production sub-sector are slightly different. Their period of seasonal strength is from January 30th to May 9th. In addition, returns offered by the Canadian energy sector, U.S. Oil Services sector and the U.S. Oil and Exploration and Production sub-sector are significantly higher than the U.S

I know from experience few investors will stick to any model when over time, it stops working and the problem here is the seasonal Energy calls simply never worked over the last 10-years. A simple buy-and hold from January 2000 to date returned 315%and the seasonal trades generated 179% over the same period. Note during the 2000-2006 advance the tendency to sell high and buy back higher. The only big call was the sell in April 2008 but once again one could also argue that in April - May 2008 you could have sold anything and been correct. Also as of now the seasonal model has missed the May 2009 to January 2010 recovery having sold last April.

At the moment the fact-or-folklore question needs more study – so over the next few weeks let us audit a few more seasonal trades before May when we all go away.

Is it OK to buy XEG now?

A question from Muntazir who has left a new comment on your post "The Perfect Trade?":Is it ok to buy XEG now.
Thanks
Monty

Answer:I would avoid the XEG (TSX Energy) because it is currrently under-performing the XIU (TSX60 Index) - The problem here is the XEG is a bad mix of energy trusts, O&G producers, integrated and oilfield services co's. I am now only interested in the oilfield service co's so some stock picking is needed

Bill Carrigan