Keystone's March Seasonality

Now that the month has rolled over once again, it's time to review March's typical seasonality. March is typically an up month (based on many decades data) with the markets gaining +0.8%. Interestingly, however, March has trended lower for most years over the last decade.  In general, the largest gains in the stock market are made from November thru April with flat returns May thru October. Those traders aware of this seasonality entered the markets long after the November sell off and have been joyfully rewarded four months later. The greatest market gains occur in Q4, with Q1 next at 2.1% and Q2 after that with an average 1.8% return. Obivously, Q1 is on its way to blow out the average returns, unless March plans on ushering in ill winds.

The dollar is typically strong from January into April. This is not the case thus far for 2012 since the dollar is weaker, euro stronger, and commodities and equities markets rocking higher as a result.  Perhaps the expected dollar seasonality will start to kick in and provide dollar buoyancy moving forward which in turn will cause selling in the commodities and equities markets. Up Friday's and up Monday's for markets typically indicate bullish markets while down Friday's and down Monday's typically indicate bearish markets. Thus, after a weak Friday yesterday, watch to see how Monday pans out, and then the all-important Jobs Report occurs on this coming Friday which will determine that day's fate.

Markets typically pull back three times a year with 5% sell offs, this is healthy behavior for a robust bull market.  For 2012, however, the markets continue to inflate on the global easy money printing, quantitative easing, so various asset classes, such as commodities, and emerging markets, high yielding stocks, are floating upwards and have not even experienced a 1% pull back yet. Thus, caution is required, trees do not grow to the sky, as the old Wall Street adage comes to mind.

The markets tend to do poorly when Congress is in session, and do well when Congress is out of session.  What a sad commentary it is, but it is what it is. Thus, for March, the Congress, and much of the political drama in general, is a market negative. On the first day of any month, new money typically rolls into markets and helps boost the indexes as shown by Thursday's action.

The full moon occurs on 3/8/12, Thursday, and typically markets are buoyant in this area. The BOE and ECB Rate Decisions occur 3/8/12. During OpEx week this month, markets are typically bullish on the Monday, 3/12/12, and also markets tend to be buoyant from Tuesday into Wednesday, 3/13/12 into 3/14/12, thus, if patient, sometimes a nice short one-day trade can be placed Tuesday, to cash out Wednesday, if you find a nice entry. The FOMC meeting is 3/13/12. This date is significant since FOMC day in March typically results in a market up day 76% of the time.  OpEx Friday is 3/16/12 and markets tend to move opposite on Monday, 3/19/12, as compared to Friday's action. March OpEx week, 3/12/12 thru 3/16/12, is typically up 85% of the time, thus, also considering the full moon, the bulls may be favored from mid week into the following OpEx week, so if the market bears want to create mayhem and do some damage to the broad indexes, they better show up to play early in the week, on Monday, 3/5/12.

The new moon occurs on 3/22/12, Thursday, and typically markets are bearish in this area. The end of the month, EOM, occurs on Friday, 3/30/12, buttoning the week, month and Q1 quarter up in a succinct bow, thus, there are four weeks remaining in the month.  This provides 20 days of trading, with no market holidays.  St. Patrick's Day is on Saturday, 3/17/12, a day when everyone is Irish. The next market holiday is Good Friday on 4/6/12; Easter is 4/8/12. Markets are up about two-thirds of the time during Good Friday week which is 4/2/12 thru 4/6/12. Window dressing plays a key role this month, since it is the end of Q1, so the markets may be favorable to the bulls during the last week of this month.

March typically plays the role of a correction month where usually 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 cell phone conference in March so technology and telecom stocks may receive positive attention.  Tech is always strongest in Q4, and this continued well into Q1 this year, so traders are likely to take profits in technology moving forward. Summer time is slow for technology and traders are sitting on a bundle of gains now that most do not want to lose.

The sadness over the tornado's hitting folks in the middle and southern States brings to light the coming Hurricane Season. March is typically a great month to do your homework on hurricane plays, power outage plays, oil and natty plays, since the hurricane watch coming in a copuple months will greatly effect trading in these sectors moving forward.  Hurricane Season is June thru November. Tax refund checks start to trickle into lucky hands during March and April and with on-line filings growing, the time frame is shortened and favors March even more.  Thus, 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. With the Midlde East drama ongoing, and WTIC Oil testing 110 and Brent 128, we may have to throw the play book out and take it all as it comes. The last thing motorists need is further gasoline price buoyancy but this is the time of year when it occurs.

Remember, seasonality factors simply provide a 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 pespective, to trade with the seasonality current rather than against it.  As in swimming, however, sometimes you must swim against the current.