Seasonals are an indicator that few traders follow. Seasonal indicators rely solely on the calendar to provide signals — making seasonals truly independent of widely followed indicators. And the seasonals are saying: Pay attention to gold mining.
Prices largely drive fundamental indicators. Popular tools like the price-to-earnings ratio, dividend yields, and other ratios are all based on the stock’s market price.
Day-to-day changes in the indicators are based solely on the price action since fundamentals change just once every three months.
Technical indicators also orbit prices. These indicators are almost all calculated with formulas adding, subtracting, multiplying or dividing the closing price. While the formulas can be surprisingly complex, they are all based on the price action.
Seasonal tendencies are found using time. They identify how often a stock or sector moves up during a given timeframe.
Seasonals are useful because the truth is some stocks will do better than others at different times of the year. The same concept applies to commodities where fundamentals are difficult to apply.
Based solely on the calendar, we are beginning an unusually bullish timeframe for gold mining stocks. The chart below shows the percentage of time VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ) goes up in any given month.
Summertime Gold Mining Is Historically Bullish
Seasonal Traders Could Benefit From Gold Miners
June through August is the most consistently bullish period for the ETF.
GDXJ includes the most speculative junior mining companies. While large mining companies and gold bullion tend to do well at this time of year as well, small gold miners tend to be the group that deliver the largest gains.
It’s possible there is an underlying fundamental reason that explains the bullish seasonal in mining stocks. It could be as simple as the fact miners produce more than expected when the weather is good in the summer months.
But seasonal traders don’t need to know the reason why the stocks go up. They can simply buy and know that they have an edge in the market.
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Michael Carr is a Chartered Market Technician for Banyan Hill Publishing and the Editor of One Trade, Peak Velocity Trader and Precision Profits. He teaches technical analysis and quantitative technical analysis at the New York Institute of Finance. Mr. Carr is also the former editor of the CMT Association newsletter, Technically Speaking.
Follow him on Twitter @MichaelCarrGuru.