Cyclical Stocks - Repeatable Market Patterns
Cyclical Stocks Definition
Cyclical stocks are securities that respond to economic issues on a seasonal or cyclical basis. For example, when the demand for gold increases during the Indian holiday season, many gold issues will experience an annual bounce due to the increase demand.
Why are some Stocks Cyclical
Cyclical stocks are items that supply and demand for their product or services are closely tied to the larger economy. Examples of cyclical stocks are petroleum producers, car makers, and retail stores. Notice how as the gas prices increased during the 2008 recession, many motorists cut back on their driving, thus driving down the price of gasoline. Conversely, when there is a bull market, consumers are more likely to spend heavily throughout the year and especially during the holiday season. This increase in profits allows the company's to purchase additional equipment, produce new products, and enter into emerging markets. Cyclical stocks will experience this "bull" affect until economic conditions shift.
Trading Cyclical Stocks
Trading cyclical stocks can be a great opportunity for traders. Ask any trader and he or she will tell you that the easiest methods for making consistent profits is to trade patterns that repeat themselves. So, as each stock or sector goes through its routine cycle, a trader will be able to identify these patterns and capitalize on these market movements.
Benefiting from Cyclical Stocks
There are multiple ways to benefit from cyclical stocks other than simply trading them. A more tangible example would be buying a new car. Notice how during the 2008 credit crisis, many car makers were offering not only 0% but employee discounts as well. So, if a consumer has cash, these type of offers only come once every 10 years and can save a person thousands of dollars in interest payments.