Monday, March 9, 2015

Keystone's March Seasonality Factors for Trading the Markets

March is typically an up month (based on many decades data) with the markets gaining +0.8%. Interestingly, however, March has trended lower for the majority of years since 2000. In general, the largest gains in the stock market are made from November thru April with flat returns May thru October. The greatest market gains occur in Q4, with Q1 (Jan-Feb-Mar) next at +2.1% and Q2 after that with an average +1.8% return. February is typically a down month where traders look for a dip to enter long and hold through April ahead of the 'sell in May and go away' period. This year February was a robust bullish month with a record-setting rally to new all-time highs for stocks. Central banker easy money typically overrules all seasonality factors and fundamental and technical analysis.

The dollar is typically strong from January into April and that occurs in spades. The seasonal strength for the dollar may be played out for now with a retracement on tap ahead. The USD basket is above 97.

The Monthly Jobs Report was last Friday, 3/6/15. The market direction on jobs day typically dictates the direction for the month. Markets typically pull back three times a year with -5% sell offs which is healthy behavior for a robust bull market but the stock market simply continues higher month after month due to global central banker easy money. Traders are addicted to easy money.

The markets tend to trade poorly when Congress is in session, and do well when Congress is out of session.  What a sad commentary it is, but it is true. Thus, for March, the Congress, and much of the political drama in general, should create a market negative. The debt ceiling limit must be raised in the days ahead that will create market drama. From the last day of the month through the first four days of the new month, equities tend to be bullish as new money enters. March follows the seasonality partially with markets topping with Nasdaq 5K on Monday, 3/2/15, the first day of trading for the month, but then dropping like a stone.

The full moon occurs on 3/5/15 and markets are typically buoyant through the full moon and stocks do trade higher on Thursday, 3/5/15, before losing the buoyancy on Friday after the Jobs Report. The new moon is 3/20/15 and markets are typically weak moving through the new moon so Thursday, 3/19/15, may print a near-term high with weakness then occurring into the weekend. The BOE and ECB rate decisions occurred on Thursday, 3/5/15. Further details on the ECB QE bond-buying program were provided.

During OpEx week, markets tend to be buoyant on Monday, 3/16/15. Also markets tend to be buoyant from a Tuesday low into a Wednesday high during OpEx; 3/17/15 into 3/18/15, thus, a one-day long trade can typically be placed on Tuesday.

The FOMC meeting is 3/17/15 and 3/18/15 with the rate decision, forecasts, and a press conference occurring the second day.  This date is significant since FOMC day in March typically results in a market up day 76% of the time. Spring arrives 3/20/15. OpEx Friday, quadruple witching, is 3/21/15, and markets tend to move opposite on Monday, 3/23/15, as compared to Friday's direction. March OpEx week, 3/16/15 through 3/20/15, is typically up 85% of the time.

The end of the month, EOM, occurs on Tuesday, 3/31/15, which will also close out Q1; EOQ1 (end of the first quarter). Window dressing will occur to end the quarter so bullishness may be expected 3/24/15 into the end of the month. St. Patrick's Day is Tuesday, 3/17/15, a day when everyone is Irish drinking green beer.

March typically plays the role of a correction month. The month sells off where many traders then enter long at a market bottom to ride the last pop up in March-April before traders 'sell and go away in May'. There is typically a smartphone conference in March so technology and telecom stocks may receive positive attention. Tech is always strongest in Q4, and then peters out in the winter and spring. Tech remains surprisingly strong all year round due to the Fed and other central banker easy money policies distorting markets. Traders typically take profits in technology this time of year. Summer time is a slow period for technology.

The Hurricane Season will begin in June and runs through November. March is typically a great month to do your homework on hurricane plays, power outage plays and oil and natty plays, since the hurricane watch coming in a couple months will effect trading in these sectors moving forward.  Tax refund checks start to trickle into lucky hands now through April and with on-line filings growing, the time frame is shortened and favors March even more. Perhaps the refunds already helped fuel February gains. This money windfall is typically spent which helps the economy, albeit in a minor way.

Gasoline costs typically peak between March and May as the refineries switch from winter to summer grades and undergo maintenance. Of course the turmoil in oil markets are currently dictating gasoline prices.

Remember, seasonality factors simply provide the gentle background current for trading, and are never used as a sole basis for trading. Just as it is easier to swim with the current, not against it, it is easier and more advantageous from a risk-reward perspective, to trade with the seasonality current rather than against it. 

Using the above information to paint a mosaic for March, market buoyancy would be expected from 3/16/15 through 3/19/15 (so consider this as trading ends for the week on 3/13/15). The new moon may usher in market weakness on Friday, 3/20/15, even though the entire week of 3/16/15 is typically bullish. Then perhaps market weakness occurs from 3/20/15 into 3/25/15 where the EOQ1 window dressing may be on tap into the end of the month. If March is up strongly, the last couple days should finish weak. If March is a weak month, the last couple days should finish stronger.

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