Specializes in pattern recognition and trading systems development. He founded Seasonax and publishes the website www.SeasonalCharts.com , which features free-of-charge seasonal charts for interested investors. In his book The Gold Cartel (published by Palgrave Macmillan, see link on the right hand side), Dimitri discusses gold price manipulation and modern-day credit excess.
Readers are very likely aware of the “Halloween effect” or the Santa Claus rally. The former term refers to the fact that stocks on average tend to perform significantly worse in the summer months than in the winter months, the latter term describes the typically very strong advance in stocks just before the turn of the year. Both phenomena apply to the broad stock market, this is to say, to benchmark indexes such as the S&P 500 or the DJIA.
Summer and winter in the stock market… [PT]
Illustration via CNNMoney
A number of individual stocks have their own “seasons” though, i.e., certain individual stocks have a habit of diverging from the major indexes and exhibit seasonal patterns of their own. I will illustrate this with an example that is relevant for the current time period.
I have picked Hasbro, a manufacturer of toys headquartered in Pawtucket, Rhode Island in the US. Our readers are very likely familiar with one of the company’s most famous products: the board game Monopoly, which was originally made by Parker Bros.
Below is a chart showing the typical pattern the stock exhibits in the course of a calendar year. These patterns can be discerned at a glance on a seasonal chart, which is calculated by averaging the performance of the stock over the past 20 years. The horizontal axis depicts the time of the year, the vertical axis the level of the seasonal pattern (indexed to 100).
Hasbro, seasonal pattern over the past 20 years. Hasbro typically advances strongly from February to April.
As the chart shows, Hasbro typically rallies very strongly in the three months to the end of April. On the other hand, the stock’s seasonal pattern shows that it usually tends to lose ground over the rest of the year. The time period associated with the strongest seasonal performance is highlighted on the chart in blue. It begins on January 31 and ends on May 2.
Hasbro’s very positive performance at this time of the year diverges significantly from that of benchmark indexes such as the S&P 500 Index. In seasonal terms, the index barely rises in February, while – also in contrast to Hasbro – it usually displays significant strength at the end of the year.
How frequent were rallies in Hasbro during the seasonally strong period? After all, it is theoretically possible that an outstanding gain achieved in just one or two years was responsible for generating this strong average performance.
The bar chart below depicts the percentage returns generated by Hasbro shares over the relevant time period from January 31 to May 2 in every year since 1998. Red bars indicate years in which negative returns were posted, green bars indicate years with positive returns.
Hasbro, average return in percentage points from Jan. 31 to May 02, in every year since 1998 – The stock posted relatively small losses on just four occasions. While there was one year with a truly outstanding gain (1999), the positive returns are generally broadly distributed, and include several years with a very strong performance. Even during the severe 2007 – 2009 bear market Hasbro managed to deliver large gains in the seasonally strong phase. Ironically three of the losing patterns occurred during the preceding bull market. [PT]
As can be seen, the green bars predominate both in terms of extent and frequency. There were 16 rallies – several of them quite strong – while relatively small price declines were recorded in the remaining four years.
In short, the gains were widely distributed and often quite impressive.
As you can see, some individual stocks do exhibit strongly entrenched seasonal patterns of their own. This means that a great many more seasonal patterns exist in the stock market than suggested by the indexes alone.
Detailed information on the seasonal trends of individual stocks can be obtained by calling up “APPS SEASON” on a Bloomberg Professional Terminal, or entering the App Studio in the Thomson-Reuters Eikon menu and calling up the Seasonax app from there. There you can select any listed stock by entering its symbol into the app’s text field and quickly identify the most promising seasonal patterns. You will also be able to examine how your favored stocks typically respond to various events, such as the release of important economic data, elections, monetary policy decisions and so forth*.
Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix method in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. For in-depth information on the Seasonax app click here (n.b.: subscriptions through Acting Man qualify for a special discount! Details are available on request).
Charts by Seasonax
Edited by PT
Chart and image captions by PT where indicated
* Note: Seasonax also offers a seasonal stock screening service to institutional investors. We set up a screening template that contains the universe of stocks of interest to you and provide you with regular reports and updates detailing all imminent seasonal opportunities