U.S. Materials 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 Monday February 1, 2010 – Thackray’s 2010 Investor’s Guide notes that the U.S. Materials sector has a period of seasonal strength from January 29th to May 6th. The trade has been profitable in 16 of the past 20 periods. Average return per period was 8.0%. The sector outperformed the S&P 500 Index by 4.5% per period.

This is my fourth seasonal trade audit having looked at platinum, TSX Energy, U.S. Financials and now the U.S. Materials sector and one theme emerges. Seasonal trades do not work in bull markets. During the great January 1999 to April 2008 bull in the U.S. Materials Sector, a buy-and-hold returned +91% and 20 seasonal trades returned +60%. The only big call during the entire period was the sell at month-end 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 17% recovery having sold last April month-end.

At the moment the fact-or-folklore question suggests a seasonal trading strategy fails in bull markets but I need to study the results of seasonal trading in protracted bear markets. At this time I have to conclude that seasonal strategies such as those served up by Thackray and the classic Stock Trader’s Almanac may invite curiosity from retail investors but are not suitable in the real world of money management

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.