One thing traders and investors take advantage of in the stock market are trends. Trends are defined as things that either recur regularly or the general direction of the price during a certain time frame. Identifying trends are one of the keys in achieving success in the stock market. Some trends last for a long time while some last for a very short period of time.
Seasonal trends are trends that normally happen in a short span of time, but normally recur annually. These trends happen on different sectors triggered by different factors or simply because of trader and investor emotions and psychology. Here are some of the seasonal trends that generally happen in the stock market.
1.) The January effect. Stocks normally have very strong momentum in January. Traders and investors start the year with very high optimism and are looking forward to position themselves early. The January effect is more of the latter. Most investors look at YTD (year-to-date) yields from January to December, they make it easier to compute if they start with January. Another reason for the January effect is the increased buying done by traders and investors who sell in December who are looking to cut tax losses in order to offset capital gains. These increase in buying volume push stock prices up fast resulting to significant gains. In order to make the most out of the January effect, buy as early as the market opens and pick fundamentally sound stocks. These stocks will go up longer than speculative stocks.
2.) Long holidays. Holidays may not be considered as a season but they occur year after year. Long holidays normally happen on weekends extending vacation or work-free days. These long vacation or holidays prompt huge number of selling normally in anticipation of something bad happening while the market is closed. If something bad happens when the market is closed, traders normally rush in line to sell as early as they can when the market opens and resumes. However, on the other hand, something positive may prompt massive buying when the market resumes. The key in long holidays? Avoid speculative and highly volatile stocks. They can easily leave you behind.
3.) Politics and economics. Elections, SONAs, GDP and GNP reports, and other things related to either politics and economics are market movers. Positive sentiment in politics and economics solicit positive sentiment in the market. Be grateful if your country will have an election and a new leader, this increase market confidence. However, this may work against the market at times especially if the elected official can’t spur market confidence. GDP and GNPs state how good a country’s economy is. A steady increase in GDP and GNP normally suggest market and economic strength which results to market confidence. Market confidence brings in more business increasing turnover and demand. An increase in demand pushes stock prices up. On the other hand, a decrease in either or both the GDP and GNP results to decrease in market confidence that leads to decrease in stock prices. Always be alert and updated about what’s going on politically and economically. Being first gives you good positions.
4.) “-ber” months. When August ends and September starts, market confidence normally increase. This happens for one reason, Christmas. Sectors that gain high confidence during these times are commodity stocks. People flock to malls, supermarkets, department stores, and hypermarts in preparation for Christmas. Such consumer spending increases these company’s profit which will declare significant gains in their financial reports. An increase of profit in financial reports increase market confidence which leads to increase in demand and price. It is wise to buy and hold commodity stocks from early September until mid-December. Why early September and not late August? Because not all commodity stocks go up during that span of time. It will also make you see which stocks get confidence and sentiment. Why mid-December and not end? Because people sell for various reasons. Generally, they sell to pocket profits and to have tax breaks.