I came across an interesting pattern while going over charts and seasonal patterns this weekend. By itself, it's not a tradable system. But it might give me more confidence to stay in certain positions over the next several weeks (of course, with Friday's 367 point drop in the Dow, I would need to see a forgive-and-forget attitude with the market this week before entering any new bullishly-oriented positions).
In recent weeks, I have been noticing strength in some semiconductor stocks. That led me to investigate the track record of semiconductor stocks for this time of year. I looked at the PHLX Semiconductor Sector index (SOX – symbol varies with different data sources). I had 19 years of data to analyze, long enough to draw valid conclusions on seasonal tendencies.
With seasonal patterns, I usually look for ‘win rates' above 75%. The win rate is the number of years the stock, index, or ETF produced a gain over a certain period of time.
In many of the seasonal charts I looked at this weekend, I noticed a slight bump in the win rates for the next 3 weeks. But it was the SOX that had a pattern that stood out. The SOX had win rate bumps at 3 weeks, 8 weeks, 16 weeks, and 21 weeks:
Why did this particular pattern catch my attention?
In 3 weeks from now, Alcoa will announce Q4 2015 earnings. Alcoa's earning announcement is typically treated as the start of the earnings cycle. The earnings release period lasts about 5 weeks. By that time, the majority of companies have released earnings, and traders and investors can get back to focusing on other things.
So of the 4 periods I've highlighted in the table above, the 3 weeks spike happens to coincide with the start of Q4 earnings releases. The 8 week spike happens to correspond to the Q4 earnings cycle ending, where everyone has a good idea how most companies are doing and can decide how to position their portfolios for the next few months.
The next spike, at 16 weeks, happens to correspond to the start of the Q1 earnings release cycle (Alcoa will announce Q1 earnings 16 weeks from now). And the 4th spike, at 21 weeks, is 5 weeks after the Q1 earnings cycle starts.
I did see a 3 week spike in several other index/ETF seasonal patterns, but the 8, 16, and 21 week spikes weren't always there. For some reason, it stands out in just the semiconductor sector trade record.
But with semi stocks currently showing strength, knowing the above seasonal pattern may give me more confidence to hold any current semi stock positions for at least 3 weeks more, and maybe accept the added risk of holding them through earnings, where the SOX has gained an average 7.6% over the next 8 weeks in a high 84% of the years.
In today's Seasonal Forecaster newsletter I cover a promising lower-priced semi stock that has averaged a 9.1% gain over the next 3 weeks, with gains in 14 out of 16 years (88% win rate).
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
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