Times of The Year
February-March
These tend to be middling kind of months. After some good gains over Christmas some people take profits in February, so don’t expect big advances here. I would look to have a bit of cash on the sidelines during these months.
April
Amazing how holiday times put people in a good mood. Around Easter the market does really well and it’s often a good time for short-term gains. The market’s stronger in April than any other month, and the probability of a positive return is a huge 78% from 1971. So it may be worth thinking about buying in mid March to catch the April lift.
May – July
I’m sure you’ve heard the old saying:
Sell in May and come back on St Ledger’s Day.
There is a bit of truth in this as May is the start of some underperformance.
May is currently challenging September to become the weakest month of the year. 2006 saw a large fall in stocks, though 2007 wasn’t too bad. Still, it’s time to perhaps be wary, take some profits and keep cash in hand. June is pretty much as weak as May, it’s the third weakest month. And July generally isn’t that better! So in summary May-July ain’t great. Maybe time for a holiday!
August
From the gloom of the last few months usually comes a great August. Of course a lot of people are away, which for a start means there is always a lot less volume. So what happens is shares can move much faster than normal on far fewer trades. August, surprisingly, is a very good month and according to market historian David Schwartz is the third best trading month of the year. According to David:
Good gains can often be achieved in August. But of course with the
volatility you have to get the right entry price.
I agree with David, I often find I can make a lot of money in August. One thing to look for is companies reporting in August. There aren’t many, but if you find one that produces a strong statement, you often find the share price responds very well on smaller volumes. Also, it is worth looking at companies reporting in early September; August is a good time to get in early in the run up to the results.
September
Yuk! September has the worst record of any month – on average it falls 1.4%. Upside is usually limited but downside can be large. If you ever want to try shorting, this is the month to do it.
October – November
Well it’s not as bad as you think. A couple of famous nasty crashes have happened in October, particularly the one in 1987. Stripping out a couple of bad years, October is actually pretty good and it’s often a good time to buy.
November is middling but buying the right shares in October and November can be a good move in the lead up to the Christmas buying spree…
December – January
December is one of the best months to buy shares. January too. Why? Because most years while it’s cold outside, December and January markets are hot! The statistics support my argument: The strongest week of the year for the market is the 51st week. And the second strongest? The 52nd week! The probability of positive returns in December is a high 69%. The market’s only had one significant fall in December since 1981. Both mid and large cap stocks perform equally well. Why are the markets so good? I suspect it is down to something as simple as human psychology. We all feel good with the approach of Christmas, then there are New Year hopes and dreams. But by the end of January we tend to be left with a bit of a hangover and that’s why February isn’t so good. Also, as markets often fall in October and November, investors begin to come in and buy what they perceive as bargains. The period between Christmas and New Year often sees stocks squeezing higher on thin volumes. While I might well be tucking into mince pies, I’m usually at my trading desk watching for opportunities to make money. Many stocks race higher during the holidays, there is often simply no one selling and institutions are shut. This often has a good effect on stocks at the smaller end of the market. Of course I am making it all sound too easy…it’s never going to work out every year. But the use of tight stop losses should ensure if it’s the year it doesn’t work out, losses will be minimal.
Bad news
On the downside, one thing to watch for are companies sneaking out bad news between Christmas and New Year. It’s the same as political parties hiding bad news on a big news story day. With so many people away, the companies hope the bad news will go unnoticed. So it’s worth keeping an eye on news reflecting your stocks. I get out quick if any kind of bad news at all is released at this time.
Strategies
So where do I put my money to make the most of the benign conditions? First (and I do this most years): I buy the FTSE 100 Index in early/mid December and I sell in early January to take advantage of the fact the FTSE usually rises in this time period. I usually just make a simple FTSE 100 spread bet long, with a stop loss in place, just in case it’s the one occasional year when the festive uplift doesn’t happen. For example, in 2005, I bought the FTSE at 5495 on 15 December and sold on 12 January at 5735 for an excellent profit of 240 points. I’d placed a £10 a point stake, so that was a nice profit of £2,400. I also like buying retail stocks short-term, only in December, as I’m not normally a great fan of retailers. These stocks often rise well before and just after Christmas, in anticipation of good consumer spending. I’m normally out by early January. Retailers usually report their Christmas figures in mid January and sometimes the reality isn’t so good, or the stocks have already risen in anticipation of good figures so they begin to fall back on profit-taking. I find December is also a good time to have a look at some of the smaller, tiddler stocks in the market and sometimes have a bit of a gamble.