Leigh, Just got this e-mail from Perspectives a few days ago. Could be another reason the stock price is no bueno. First the warning..
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Commentary
Ahhh, summer. Nice weather, barbecues, camping ... taking a holiday. What could be bad about summer?
Here's an idea ... the speculative stock markets are terrible.
This week we discuss the importance of seasonality in making investment decision. Markets have a tendency to move with seasonal tendencies. It is therefore important to understand how the seasons affect the price of stocks. We look at the VSE index, but also the two important resource sectors, oil and gas and mining.
Without fail, the VSE Index (our benchmark for speculative stocks) quiets and heads lower during the summer. With many market participants focused on their golf game or travelling, it is difficult to run a promotion of a deal. And so, most promoters head to the beach, and companies keep their stories quiet. The VSE Index has been down each of the past six years, with the average loss at 3.97%. However, the weakness tends to begin in June, with four of the past six years lower and the average loss at 5.44%.
Surprisingly, the market tends to move up in anticipation of the end of summer, with the market finding its bottom in July and beginning to turn around in August. Four of the past six years have had August gains. Then, we get a second "echo" correction, as the speculative markets again turn lower in September and October with October recording the largest average loss for the month, 12.188%.
Generally speaking then, speculative stocks are best bought in July for a quick August rally. But, only traders should apply as the markets tend to again tail off as resource companies look to winter freeze up before much of their exploration activity begins. Bottom fishing activity begins in October as the market tends to run higher after Christmas and tax loss selling. Five of the past six years have been up in January.
So, how about the key resource sectors? Much like the VSE Index itself, the oil and gas and gold sectors tend to bottom in June and begin a rally toward the end of the summer. As summer travelers hit the road, fuel consumption draws down oil and gas storage and prices start to turn higher. With higher energy costs comes an implied inflation, which perhaps explains why the precious metals stocks tend to rally in step with gold. May, July, August, and November are the strongest months for gold stocks over the past 12 years. Oil and gas rallies a little bit later, August tends to be a good up month but the market then cools until the winter, when the oil stocks begin a more sustained rally into the spring.
There are some thoughts on seasonality to consider. One should never trade solely on seasonality, but it does help to consider this sort of thing and watch for signs in the market that the sector is likely to move with the historic average.
Enough Said.
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radarluv
P.S.some people can't take a little levity around here! Must be all those Rush Fatbaugh fans. |
