When we study the stock market and its movements, we normally look at technical and fundamental data points for clues on future moves. We can also use sentiment gauges to help understand the emotions (greed or fear) of investors and traders. And then there are the seasonal stock market trends that appear nearly every year and often defy logic.
These seasonal trends tend to play a larger role in the stock market than many traders would like to admit. The calendar has a strong influence on behavior. If we are not paying attention, we risk severe losses that are only related to timing.
As an options trader, I constantly pay attention to timing. Part of an option’s lifespan is determined by time decay. Contrast my focus on timing to the behavior of most stock market traders and investors. They do not fight the clock or the calendar, and that can make it easier to analyze whether to buy, sell, or hold a stock. When you are not held to a timer that is quickly headed to zero, you don’t have the pressure to time your trade just right.
Seasonal stock market trends can easily throw off traders from their game.
There are many calendar anecdotes that can easily sway the mood of traders – and thus affect the market trend. We have “sell in May and go away,” the “Santa Claus rally,” the “summer rally,” and “the first five days in January.” Like I said, just mentioning an anecdote, like the Santa Claus rally, can get traders to comply, creating a sort of self-fulfilling prophecy.
But there is one reliable seasonal trend with a strong track record. It is definitely not an anecdote.
During the second half of September, the stock market has historically shown some heavy weakness. Over the last 33 years, the stock market has been down 26 times during this time period. And it’s usually down more than 1%, regardless of the fundamentals or technicals. It doesn’t have a name, so I’m calling it “seasons change.”
Be cautious over the next two weeks.
