Taking Advantage of Seasonal Stock Market Trends

There are a number of timely seasonal stock market trends upon which investors can capitalize. Many hedge funds, institutional investors, and high powered individual traders are taking advantage of these seasonal stock market patterns to bring home major profits on short term trades.

The Best Months for Stocks

In order from top to bottom, the best months for seasonal stock market trends are July, January and December. July usually proves well because of back to school shopping seasons and the “holiday effect,” where general optimism appears before major holidays such as the fourth of July. January and December come in a close second behind July for seasonal stock market patterns. January's excellent returns hinge upon the fact that hundreds of retailers report their holiday sales figures for the following quarter. Retailers, at least in January, make up the list of the best seasonal stocks when holiday sales are up year-over-year. December is a bit of an anomaly in seasonal stock market trends due to what traders call the “December Effect.” Usually, stock traders dump their losing positions in December to take advantage of tax write offs, but this effect is only moderately noticeable after years of large losses. Many investors tend to make up for lost time in their IRAs and add to positions in December before the end of the year.

Calendar Months

The first and last few trading days of the month are usually bullish days for the stock market, giving investors a smart play on seasonal stock market trends. Since a number of people invest primarily through retirement plans offered by their employer, each time a paycheck is delivered, a small amount of the check flows into mutual funds and into the stock market. The volume created by these institutions is significant enough to affect the average return of the first two and last two days of the month to the tune of .15% per day.

Seasonal Stock Market Patterns

As the summer months drag on, oil prices head higher, and more people go on vacations and use their cars more frequently. As such, oil stocks make the list of seasonal stocks when purchased in spring and held until September, as they tend to provide a positive return on investment often greater than the simple rise in oil. Remember, stocks are highly leveraged to small changes in commodities, since oil companies have the same fixed costs at $30 per barrel as they do at $100 per barrel. Thus, a company that makes $2 per barrel at $30 oil will make $72 per barrel at $100 oil. How is that for a 3600% increase in profits? Clearly, there is a reason why oil frequently makes the list of best seasonal stocks. Playing the seasonal trends is what hedge funds and institutional investors love to do. Why shouldn't you?
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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