More Seasonal Considerations

By Lawrence G. McMillan

The period between late October and the end of January is replete with seasonal trades. In late October, we had the “October seasonal” buy, followed by the Thanksgiving-related seasonals (most notably the post-Thanksgiving trade), which dovetails at the end with the Santa Claus Rally.

January is a month with many seasonal patterns available. There is the "January early warning system," which says: as go the first five trading days of the year, so goes the year. This year, $SPX eked out a tiny gain of just over 3 points over that seasonal period.

Then there is the more well-known January Barometer, which dictates that as January goes, so goes the whole year. That seasonal was wrong last year, when January was down but the market was up for the year. But over time, this indicator has been correct nearly 88% of the time. However, the last three times that January has been down (2014, 2010, 2009), the January Barometer has been wrong. So far this year, $SPX is up about 5 points so far, but there is still plenty of time to overcome any deficit, especially at current volatility levels.

A less well-known system is the "January Defect," which we did not play this year. It says that the NASDAQ Index usually declines from the 8th trading day of the year through the 18th trading day. So far, QQQ is up slightly since the close of the 8th trading day (January 13th), but again there is plenty of time before this seasonal period ends on January 28th.

Finally, a system that we do normally trade is what I call the January Seasonal. It calls for buying $SPX at...

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