The feature article is our annual market review and forecast issue. Forecasting has taken a back seat to Fed watching these days, but we present some data on how markets in general have fared after two strong years, such as the two that have just concluded.
The feature article was designed to be a piece about the January Effect (the period of time when small-caps outperform big-caps, after tax loss selling has ended). But the study revealed some new facts about seasonality, and we make a modification to our Post- Thanksgiving trade because of it.
You’d have to be a pretty long-term subscriber to remember when we used to trade the January Effect. For a long time, it worked like a charm, but then traders started to anticipate the effect, shifting its time frame, and then it stopped working altogether – obliterated, it seems, by conflicting forces, seasonality, and changing market conditions.
There are a number of systems and indicators that we follow – some with frequent signals, others with as few as annual signals – that are worth noting, as the broad stock market makes new all-time highs. Some of these are related to market prediction, while others have nothing to do with stocks. So, in that sense, this article is a bit of a potpourri.
In a recent issue of The Option Strategist Newsletter, we deatailed a trading system based on a modified version of John Bollinger's Bollinger Bands. We have since received numerous inquiries asking how we calculate and plot our "modified" version.
The stock market is once again overbought, and we have done more research into what we hope will be effective systems for taking advantage of these conditions. Most of the article is devoted to creating a trading system around the “modified Bollinger Bands,” but market breadth and volatility are “overbought,” too. A recommendation is made on page 4.
The feature article this week lays out three of the seasonal patterns that we trade or observe in October and November. More will follow later in the year, and they will be the subject of another article at that time. The October Seasonal trade won’t be operative this year unless there is a larger pullback than the modest one we had last week.
It's almost that time of year once again for one of our most successful seasonal trades: the Heating Oil – Gasoline futures spread. This trade has had a steller track record over the years and has been followed closely in The Option Strategist Newsletter.
Of course, the title of this article is also the title of a song that refers to the Christmas Holiday season. Although, I prefer the Staples commercials in which the parents are dancing around while singing the song as the children return to school in September.
