Keystone's February Seasonality Factors for Trading the Markets

The only three months of the year that typically provide negative stock market returns are February, May and September. February is typically down -0.3%. The largest gains in the market are made from November through April with flat returns occurring May through October. Since the 1950's, the returns for the quarters are Q1=2.1%, Q2=1.8%, Q3=0.6% and Q4=4.3%.

Markets are typically buoyant the two days in front of a three-day holiday weekend.  February 17th is Washington's Birthday/Presidents Day and the markets are closed.  Thus, 2/13/14 and 2/14/14 would be expected to be bullish. However, this holiday is special because past data actually shows a higher likelihood that Friday, 2/14/14 would be down as well as 2/18, 2/19 and 2/20/14. Negativity also conflicts with the expected Tuesday to Wednesday OpEx week bullishness from a low on 2/18/14 to a high on 2/19/14. Thus, conflicting market signals but the bearish case carries a bit more clout since past data shows weakness anticipated for 2/14/14, Valentine's Day, through 2/20/14.

For OpEx week, Monday tends to be bullish, but this year Monday, 2/17/14, is a holiday and markets are closed. The Tuesday to Wednesday bullishness usually occurs during OpEx week; with the holiday, perhaps these seasonality factors may right translate a day or two. The last two days of February markets are typically down -0.6%, and February performs the worst out of all months for the last two days of the month, so a weak finish to the month may be on tap. The EOM is Friday 2/28/14. Congress is in session and will be dealing with the debt ceiling deadline so markets tend to be bearish. The US government will run out of money to pay its bills on 2/27/14 unless Congress raises the debt ceiling. With the weak finish days coinciding with the debt ceiling deadline, will there be high drama on tap with the Congress clowns playing political baby games during the final days of the month? The dollar tends to be stronger from January through April as compared to the rest of the year. So far in 2014, the dollar moves flat with upward buoyancy. Commodities, copper, gold, oil and equities typically move opposite the dollar.

The Superbowl Predictor is if an original NFC team wins, markets will be bullish.  If an original AFC team wins, the markets will be bearish.  Funny thing, neither the Seattle Seahawks (NFC), the winner, or the Denver Broncos (AFC), the loser, are original NFC teams so the market bears are favored in 2014 no matter what the outcome. If using the indicator as more of a pure AFC vs NFC, the NFC won so bullish markets would be expected. In other words, either side can claim victory.

Shipbuilders typically move up in February and then UPS and FDX follow along, however, UPS and FDX have been pumped very high already and actually appear to be rolling over. The Baltic Dry Index (BDI) has collapsed from December so perhaps a move up due to a washout and also seasonality will be in order. Typically, February is a good month to buy cyclicals like steel, chemicals, etc... Lately, the coals, iron ore, steel stocks may be showing a pulse. Traders may start nibbling here since seasonality-wise, these sectors should receive more love than other sectors.  A low in oil price tends to occur in late February.

Companies such as Hershey's, HSY, tend to top around Valentine's Day, so consider these plays as shorts. Tech is strongest in Q4 and traders typically exit the technology sector the second week of February (week of 2/10/14). Traders not exiting technology in the second week then tend to exit between OpEx and the end of the month. At any rate, the technology joy in January tends to deflate in February. Markets tend to be bullish through the full moon, 2/14/14, and bearish through the new moon, 3/1/14.