Sunday, February 8, 2015

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 16th is Washington's Birthday/Presidents Day and the markets are closed.  Thus, 2/12/15 and 2/13/15, Thursday and Friday,  would be expected to be bullish. Valentine's Day is Saturday, 2/14/15, and markets are typically weak from 2/14 through 2/20 so 2/17/15 through 2/20/15 would be expected to be weak. This conflicts with a typically bullish OpEx Tuesday to Wednesday, 2/17/15 to 2/18/15 expectation. Thus, conflicting market signals but the bearish case carries a bit more clout since past data shows weakness anticipated after Valentine's Day through 2/20/14.

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; 2/25/15 through 2/27/15. The EOM is Friday 2/27/15. Congress is in session so markets tend to be bearish. The dollar tends to be stronger from January through April as compared to the rest of the year. The dollar has been on a parabolic move higher for the last few months so seasonality-wise, that rise in the dollar may soften and flatten out as the next 3 to 10 weeks play out. 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.  Taking the indicator at face value without getting into subtle nuances with this predicting tool, the New England Patriots, an AFC team, wins over the defending champions, the Seattle Seahawks, a NFC team. Thus, the AFC won so bearish  markets would be expected this year.

Shipbuilders typically move up in February and then UPS and FDX follow along, however, UPS and FDX have been pumped very high already from central banker easy money and actually appear to be rolling over off the top. The Baltic Dry Index (BDI) has collapsed to 30-year lows as the global economy stalls and many shipbuilders are beaten down and are attractive opportunities and seasonality would be a tailwind. 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. Coal is an attractive sector for the long side in 2015. Traders may start nibbling here since seasonality-wise, these sectors should receive more love than other sectors this time of year. 

A low in oil price tends to occur in late February. This is interesting since a low occurs as February begins. Is that close enough for government work or will price come back down to honor the more typical seasonal expectation of the bottom in oil later in the month? Since incorporating seasonality factors into trading is more of an art than science, the bottom in oil that occurred last week may be good enough since it occurs in 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 2/9/15). 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 Q4 perhaps bleeding over into January tends to deflate in February. Monitor XLK to see if the weak technology seasonality expectations play out.

On the esoteric side, markets tend to be bullish through the full moon, 2/3/15, which already occurred and stocks did move higher through the full moon, and bearish through the new moon, 2/18/15. So stocks would be expected to be weak from 2/18/15 to 2/19/15. The new moon is 6:42 PM EST 2/18/15.

Fed Chair Yellen speaks in front of Congress on 2/24/15 and 2/25/15 so she may flap her dovish wings to send stocks higher. Taking all of the above info and mixing it together and sprinkling some magic voodoo dust on top, the following path forecasts the underlying market current flowing in the background; bouyancy in stocks from 2/9/15 into 2/17/15 the first day back after the President's Day holiday. That day would also be expected to be bullish into Wednesday, 2/18/15 but the new moon should usher in negativity into 2/19/15 and perhaps end the week on a downbeat 2/20/15. In the following week, 2/23/15 into 2/25/15 may be buoyant in front of and as Yellen speaks but then the month finishes weak falling from 2/25/15 into the last trading day of the month on Friday, 2/27/15.

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