The Little Book of Stock Market Cycles: How to Take Advantage of Time-Proven Market Patterns

Chapter Six

Open Season for Stocks

When to Trade Seasonal Trends for Reliable Returns

There is no such thing as a perfect trading strategy, tactic, or methodology, but our Best Six Months Switching has an undeniable track record. The Best Six Months are basically the flipside of the old “sell in May and go away” adage. Market seasonality is a reflection of cultural behavior. In the old days, farming was the big driver, making August the best market month—now it’s one of the worst.

This matches the summer vacation behavior where traders and investors prefer the golf course, beach, or poolside to the trading floor or computer screen. Institutions’ efforts to beef up their numbers help drive the market higher in the fourth quarter as does holiday shopping and an influx of year-end bonus money.

Then there’s the New Year, which tends to bring a positive new-leaf mentality to forecasts and predictions and the anticipation of strong fourth- and first-quarter earnings. After that, trading volume tends to decline throughout the summer and then in September there’s back-to-school, back-to-work, and end-of-third-quarter portfolio window dressing that has caused stocks to sell off in September, making it the worst month of the year on average. Though we may be experiencing some shifts in seasonality, the record still shows the clear existence of seasonal trends in the stock market.

The “Best Six Months” Trading Strategy

Our Best Six Months Switching Trading Strategy consistently delivers. ...