STRATEGIES

Craft an effective approach for the year ahead armed with knowledge about these proven seasonal patterns, which commonly affect equities, commodities, and currency markets.

Over the past few years, there has been more discussion of the seasonal patterns in the financial markets. In the 1980s and 1990s, the seasonal research was concentrated on the commodity markets, as many veteran commodity traders were familiar with seasonal tendencies in the grains, meats, and soft commodities.

My first exposure to seasonal analysis was in the early 1990s through Steve Moore of the Moore Research Center, which provides extensive research into seasonal trends and how they can be used to trade commodity spreads.

Several years ago, I became more intrigued with seasonal analysis after several interviews with John Person, who has done extensive seasonal work on commodities as well as individual stocks and sectors.

During his interviews, John would often make seasonal references in his market analysis, and it was a November 2009 interview that really got my attention. In that interview, he told me that gold, which was currently rallying sharply, typically forms a short-term top at beginning of December. A couple weeks later, on December 3, 2009, gold made a high of $1227.50 and dropped below $1075 over the next 13 days.

More: View that 2009 interview here

I subsequently reviewed the Commodity Traders Almanac, which is co-edited by John. Now, if I have a question on seasonal analysis, I turn to him, as he has been kind enough to share with me his knowledge of the seasonal trends that he has gleaned in over 30 years of trading.

Modern software analysis does make identifying seasonal trends easier, and in this lesson, I will be using charts from Trade Navigator, which is a product of Genesis Financial Technologies, Inc. 

It is important to note that these are best referred to as seasonal trends or tendencies since the markets do not follow these patterns every year. The analysis just reveals that statistically these patterns are the dominant ones.

I use some of my favorite indicators such as on-balance volume (OBV) and/or the Advance/Decline (A/D) line to confirm that the markets have indeed turned. This can be a very powerful combination. The seasonal trends in these four key markets are the ones that every investor and trader should mark on their calendars as we head into 2012.  

NEXT: Seasonal Trend #1: Crude Oil

Tickers Mentioned: Tickers: XLE, GLD