Stock Market Seasonality Forecasting
Stock market seasonality has never been easier with this new public tool from StockCharts. In this lesson you will learn how to use this tool for any stock that you want to trade.
Stock Market Seasonality Forecasting
Seasonality forecasting works and is why Wiley has been able to make a lot of money off the yearly publication The Stock Trader’s Almanac. I use monthly seasonality in my stock trading algorithm and weekly forecast videos.
Stock Market Seasonality Chart
StockCharts has just released a new public tool anyone can use called the Seasonality Charts. You can access the Seasonality Charts tool here.
Scroll down to the bottom of the page and enter any ticker symbol you want in the “Create a Seasonality Chart” box, and click the “Go” button:
You will now see 5 lines on a chart that represent the chart of the stock you entered going back 5 years. Down at the bottom is a slider that you use to change the 5 year period to 4 years, or anything you want (click on the image below to enlarge):
Click on the “Histogram” tool in the bottom left corner of the chart (click on the image below to enlarge):
You will now see the breakdown of each month presented as a bar with one number on top, and one number on the bottom. The number on top is the % that the stock has outperformed the S&P 500 for that month. The number on the bottom is the average % gain for that month:
I recommend that you walk the slider up from 2 to 4 to get a better idea of monthly performance. In my opinion the best setting to use is going to be 3 and 4 so that you exclude 2008 and 2009 which were abnormal years for the stock market.
Frequently Asked Questions about Stock Market Seasonality Forecasting
What is stock market seasonality?
Stock market seasonality is the study of how markets perform during certain months of the year.
There are certain sectors, industries, and stocks that do better at certain times of the year.
The most well know stock market seasonality patterns are The Best 6 Months of the Year, The Worst 6 Months of the Year, December’s Santa Claus rally and the January Effect.
The Best 6 Months of the Year
The Best 6 Months of the Year seasonal market trend begins in November and ends in April.
The Worst 6 Months of the Year
The Worst 6 Months of the Year seasonal trend begins in May (Sell In May and Go Away) and ends in October.
Santa Claus Rally
The traditional Santa Claus Rally only occurs during the last week in December; however, most seasonal trend traders today combine the End of December Effect and the Santa Claus Rally into one.
The Santa Claus Rally comes from tax selling by many investors who want to claim capital losses on the current year’s tax return. This tax selling creates some excellent oversold chart patterns.
At the beginning of January, investors return to the stock market, pushing up prices of mostly small cap and value stocks.
OTCBBstocks posted the video below called Seasonality of the Markets.
What is the January Barometer?
The January Barometer is how the month of January performs on the S&P 500, so performs the market for the rest of the year. The January Barometer is correct 76% of the time.
Every January that the S&P 500 closed down, since 1950, has preceded a new or extended bear market, a flat market, or a 10% correction according to the Stock Trader’s Almanac.
PinnacleTrust posted the video below called January Barometer.
What is the First Five Days indicator?
The First Five Days indicator measures what the S&P 500 does in the first five days of January. If the S&P 500 closes up for the first give days in January, it precedes the full-year closing up on the S&P 500 85% of the time.
John Wiley Sons, publisher of the Stock Trader’s Almanac, posted the video below called Stock Trader’s Almanac 2011 – January Barometer. Even though the video is dated, it still has some helpful statistics and facts about the importance of January.
What is the Monday Effect?
The Monday Effect is the tendency of stocks to close down on Monday’s due to the weekend news cycle.
For swing traders, this makes Monday the best day to go long stocks near the low of day, and then sell by Friday. The Monday Effect is not nearly as accurate as seasonal patterns so use caution.
In the video lesson below I will talk more about the new Seasonality Charts feature on StockCharts, and how you can use this tool with Jason Bond Picks or any stock trading system you are currently using.