There are certain inescapable facts of the markets that you can use to your advantage. For instance, the market tends to underperform in September. That's a statistical likelihood - and it's a great way to give yourself a leg-up in an otherwise difficult market.
We can profit from this seasonal tendency and others as they exhibit repetitive price patterns throughout the year. Being aware of these strong seasonal biases is an important tool that is often overlooked by investors and traders. Why would you not want to know about a particular day (or time frame) when NYSE: QQQ (Nasdaq 100) has risen 17 out of the last 20 years?
Seasonal tendencies are best used as a forecasting aid. Seasonality alone is (in almost every case) not a reason place a trade. However, when compared with the current state of the market at the time the seasonal tendency arrives, the probability of a successful trade can be increased tremendously. It is important to always be aware of the market's seasonal picture.
I make a point to mention seasonal tendencies as they arrive in my commentary on the Wyatt Investment Research website and in the near future, we will be offering an array of seasonal info including research articles, charts, etc within my Options Advantage service.
My preference is to use seasonal tendencies to assist me when making a short to intermediate-term trade. By looking at market performance on a specific time frame, whether it is a specific day, month, etc. you will start to see glaring seasonal tendencies. As you delve further into the seasonal calendar you will start to notice tendencies around option expiration, holidays, and the days surrounding the beginning/end of the month. Some months have greater tendencies than others (some are actually bearish), but wouldn't it be to your advantage to know these types of biases.
When trading my strategies it always advantageous to know if any seasonal trends are on the horizon. For example, if the market is currently overbought and the market gaps higher normally I would not hesitate to place a trade, but if there is an unusually strong seasonal bullishness on this particular day I might take a smaller position, not place the trade at all, or possibly try to get a better price knowing that the seasonal bullishness on this particular day quickly moves into a bearish period the following day or so. This is just a one of many ways I like to use seasonality to my advantage.
I will be constantly discussing seasonal conditions as they arise including market performance around holidays, market performance around options expiration, average gains around the beginning of each month as well as a few sentiment indicators including Put/Call ratios, Rydex Fund assets, Trader Commits, Investor Surveys and various other seasonal and sentiment-based indicators.
So what about today's seasonality? I wrote about September seasonality last week and the results were not good.
The 2.6 percent loss during the first three trading days of the month is actually the second worst start in September in the S&P 500's history.
There have only been 5 other occurrences where the S&P 500 has lost more than 3 percent during the first three trading sessions of September and according to analyst Jason Goepfert that has spelled trouble for the benchmark index going forward.
He states that all 5 instances witnessed additional declines of over 9 percent during September and every one closed lower by the end of the month at least 5.8 percent.
Here are the years courtesy of Sentimentrader.com .
And, now we are entering one of the weakest periods of the year. Not one trading day over the next six days are historically positive.
So, with that being I am still looking for opportunities to sell credit spreads like the ones I have mentioned over the past month.
P.S. If you want to hear more about my options strategies, I'd like to invite you to sign up for a free event I'm holding NEXT Tuesday, September 20th.. I'll be going over some more of my favorite options trades, and I'll be giving you information on how you can receive my trades for yourself on a regular basis.
I urge you to sign up quickly if you're interested - don't wait until the last minute. Not everyone will be able to take part in this event...