|
Birds fly south in the fall, and flowers start blooming in the spring, but
who would ever have thought of the stock market as also being a seasonal
phenomenon? How can the changing of the seasons bring about positive or negative
changes in the performance of the market? Knowing how is more difficult than
knowing that it does. Graphs tracking monthly performance of the S&P average
returns for the past 80 years definitely show that winter and summer are the
best times for making money on stocks whereas the fall will be the time to buy
at lower prices. Assuming that the market trends continue to track with the
stock market seasonality they have shown in the past, savvy investors can to use
the trends to make some money.
Keep in mind, though, that market timing isn't the same thing as factoring in
seasonality. Market timing is based on short term trading and trying to come up
with the right bottoms and tops. Seasonality, on the other hand, is all about
trying to anticipate what the market is going to do at any given time of the
year or even day of the week. While it isn't possible to accurately predict that
this year's market is going to react the same has it has in past years, the
trends are still solid enough to give you some opportunities. For example, it's
a given that investors are going to sell stocks that have lost all year in
December in order to take advantage of capital losses. If you're inclined to
take advantage of this opportunity, you want to make sure you sell before the
masses all start selling theirs.
Another example of a stock market seasonality that you can take advantage of
is the tendency stocks have of rising at the turn of the new month and then
falling during the middle of the month. This is referred to simply as Turn of
the Month, and by making regular contributions in the middle of the month
instead of at the beginning, you stand to make an easy profit. There is also
another trend you can take advantage of, and that's the Monday Effect. Bad news
over the weekends tend to result in market drops on Mondays. Therefore, if
you're planning to buy stock, the best day of the week to do it is Monday.
|
