Seasonality Map for July, 2010
This is a monthly feature at the MarketSci Blog.
Below is a map of potentially strong/weak days for the U.S. stock market in July based on historical seasonality patterns. Read more after the image.
Scorecard: since launching in April, the monthly seasonality map has called the closing direction of the S&P 500 correct 59.1% of the time with winning predictions 1.16x losing ones. Too early to get too excited about, but it’s an optimistic start (you only have to be right a bit more than you’re wrong).
About the Monthly Seasonality Map
One of the unexpected side effects of keeping this blog is I’ve become a proponent of seasonality (i.e. bullish/bearish biases around certain times of the month, year, etc). This seasonality map forces me to tie my seasonality studies together every month and is even being used in our own proprietary strategies (read how).
The studies included are: (a) the turn of the month, (b) the first and last day of the month, (c) the day-after options expiration, (d) the monthly W, (e) individual holidays, (f) scheduled Fed meetings, and (g) strong/weak calendar months.
To be clear, I do NOT think that seasonality alone is sufficient to justify a trade; however, all of the seasonality plays included in this report have been consistent enough that I do think they should be one of many tools in the trader’s toolbox.
Some observations have been stronger than others, so I’ve rated the strength of each from -100% (most bearish) to +100% (most bullish). Very low ratings (+/- 25%) indicate the play has been very inconsistent and needs to be viewed with an extra skeptical eye.
This is a constantly evolving work and reader input is always appreciated.
Happy Trading,
ms
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Filed under: Monthly Seasonality Map | 4 Comments
Michael,
Congrats on getting both the % correct and the win/loss ratios up slightly over last month.
Which leads me to my question: what is the standard of measurement for your performance calcs? I’m assuming you use the S&P, but even there you can of course have flavors such as SPY, S&P futures, index-tracking mutual funds, etc, as you’ve often discussed. So I was curious as to which you were using as the basis for the calculations.
Thanks.
RE to CarlosR: hello sir. Will put together a post on this at some point, but in the meantime…
(1) I’m using VFINX (Vanguard S&P 500) to represent the market.
(2) I’m not considering days where we make no prediction. They don’t hurt or help the stats.
(3) I’m considering both the direction of the prediction (+/-) and magnitude. I’m assuming an investor invested the same % of the portfolio as the prediction (close-to-close). That way bigger predictions are more heavily weighted than smaller ones.
Hope that helps.
michael
Michael,
Very helpful, as usual.
Thank you, sir.
Some interesting observations that you might want to look into is the 9 day of the month. It tend to be bearish, and has a very good t-score trading the SPY. Don´t know of it´s a fluke, and I know of no reason why it would work so it could very much be. But then again, isn´t most predictable seasonalities hard to explain?
The rules are to go short on the close the 8th day of the month and close the position on the close on the 9th day. The rule only started to have an affect in 1985 but has been pretty consistent ever since.
Thanks for your effort to provide us with your brilliant insight.