Keystone's February Seasonality

Before taking a look at the seasonality factors for February trading, a quick look back at January is in order since it was the best January since 1997.  The January Barometer says that however the market does in January, bullish or bearish, so goes the year. This adage is correct about two-thirds of the time. Also, if the markets are up the first day of January, which they were, the markets typically finish up 80% of the time. Thus, we were up the first day and also for the month so this predicts bullish fun this year. But, not so fast, last year, January 2011 was up and markets experienced the August crash only to recover to a flat line.

Seasonality is simply a current flowing behind daily trading, think of it as a breeze blowing gently, nudging markets one way or another. Simply knowing the seasonality factors is another edge that you have on another trader.  2012 is the fourth year of the Presidential Cycle. Last year was the third year of the cycle, typically the most bullish of all four years, but that did not live up to its seasonality reputation.  Interestingly, if the third year of the cycle does not gain at least 10%, such as 2011, the fourth year the market is down 10%. The only time that markets were negative in the third year of the Presidential Cycle was twice--both in the 1930's Great Depression. This information dampens the bullish joyous spirit from Janauary.

The only three months of the year that average out to negative returns, and are obviously the most bearish months, are February, May and September. So February growls and is typically down -0.3%. The largest gains in the market are made from November thru April, flat returns May thru 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 20th is Washington's Birthday/Presidents Day and the markets are closed.  Thus, 2/16/12 and 2/17/12 would be expected to be bullish. For the Friday Jobs Report 2/3/12, if the jobs number is weaker than expected, the industrials sector, XLI, and financials, XLF, will move more strongly lower than the broad markets.  If the jobs number is a positive surprise, the XLI and XLY, consumer discretionary, will outperform the broad market to the upside.

For OpEx week, Monday tends to be bullish, which is 2/13/12, and markets tend to be bullish from Tuesday into Wednesday, 2/14/12 (Valentine's Day) into 2/15/12.  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. Congress is in session so markets tend to be bearish.  The dollar tends to be stronger from January thru April as compared to the rest of the year. The commodities, copper, gold, oil and equities markets 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, the Giants (NFC) won against the Pats (AFC) in the 2008 Superbowl.  Do you remember what happened in 2008? Yes, an epic market crash, so always take it all with a grain of salt.

Shipbuilders typically move up in February and then UPS and FDX follow along. The Baltic Dry Index (BDI) has collapsed so perhaps a move up due to a washout adn also seasonality will be in order. Typically, February is a good month to buy cyclicals like steel, chemicals, etc...  A low in oil price tends to occur in late February. Companies such as Hershey's, HSY, tend to top around Valentine's Day.  The January rally was led by an uber strong technology sector and blow-out AAPL earnings that makes up a large protion of the Nasdaq. Tech is strongest in Q4 and traders typically exit the technology sector the second week of February. 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 will likely deflate in February.