Seasons drive much of our lives. We see this in dozens of instances…
Kids get summers off and go back to school in the fall. Spring cleaning helps us get rid of the clutter that builds up over the winter.
Seasons also drive parts of the economy. Retail sales peak in December. That includes auto sales. Dealerships intensify sales efforts toward the end of the year to meet annual quotas, clear out inventory and prepare for the next auto manufacturing peak in May. This allows time for cars to be delivered and prepared for sale again the following December.
These trends repeat year after year. It makes sense then that traders have found ways to benefit.
One of the oldest Wall Street sayings is: “Buy the rumor, sell the news.” We can see how that plays out in the auto sector.
Seasonality of Auto Stocks
Auto stocks consistently outperform in April. That’s ahead of manufacturers releasing production numbers in May. Analysts make their best guesses about production ahead of the news. Expectations of a big number drive gains in the stocks. Then, the news is released, and the stocks sell off.
It’s no surprise that the same pattern appears at the end of each year. November is generally a strong month for auto stocks. December sales at dealerships hurt investor confidence as the stocks tend to underperform the broader market.
This shows how we usually think of seasonal patterns … as unfolding over weeks or months. But it helps us as investors to take a wider view.
You see, seasonals are simply time-based patterns. They can be long term, unfolding over generations … or short term, developing in just days or even hours.
It’s the shorter-term seasonals that appeal to traders as they provide us with the opportunity to capture faster profits…
Benefit From Price Action in Short-Term Seasonals
Some traders follow the price action near the end of the month. Research proves this is a consistently bullish period.
One reason we should expect prices to rise at the end of the month is because this is when many investors make contributions to retirement accounts. Another reason is because fund managers are putting cash to work at that time.
But this is not the only short-term seasonal trend.
Traders are also generally bullish around holidays. We don’t seem to have any underlying rationale for this. But seasonals don’t need a strong rationale. As long as everyone expects something to work in the stock market, then that thing is likely to do so.
Traders are also generally more bullish on some days of the week. This pattern does have a strong rationale.
Many individual investors do their research on weekends. That’s when they have time off from work. In the old days, that provided a few hours to review the recommendations their broker provided. Now, it allows time to consider the research we access online.
Before online account access was available, investors often placed orders to buy on Monday. Brokers executed many of these trades at the open. Others completed the buys later in the day. This created a bullish bias for Monday. Price action often continued higher for a couple of days before weakening near the end of the week.
With online access, this pattern has shifted slightly.
My friend and colleague Adam O’Dell has studied this seasonal tendency and discovered specific times of the day that are ideal for trading.
Using his time-based pattern, Adam has developed a technique to generate significant gains in just a few days.
Some of his best trades using his Money Code produced incredible profits in just two days.
Adam’s getting ready to reveal his research and show you how to take advantage of these weekly patterns.
This is your last chance to add your name to his guest list before Thursday’s presentation at 1 p.m. Eastern time.
Until next time,
Mike Carr
Chief Market Technician
