Seasonality Map for September, 2011

31Aug11

This is a monthly feature at the MarketSci Blog.

Below is a map of potentially strong/weak days for the US stock market in September based on historical seasonality patterns. Read more after the image.

Note: on the first map posted, I didn’t account for the FRB announcement moving to 09/21. My apologies. The map below has been revised to include the move.

Scorecard: since launching in April 2010, the monthly seasonality map has called the closing direction of the S&P 500 correct 50% of the time with winning predictions 1.4x losing ones (solidly outperforming 55%/0.9x for buy & hold).

The large vs small cap map (see below) has, since launching in January 2011, called large caps relative to small caps correctly 54% of the time with winning predictions 1.0x losing ones (outperforming either neutral pair).

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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 each from -100% (most bearish) to +100% (most bullish). Very low ratings (+/- 25%) indicate the play has been inconsistent and should be viewed with an extra skeptical eye.

This is a constantly evolving work and reader input is always appreciated.

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Large vs Small-Cap Seasonality Map

This year I’ve also begun issuing a monthly large vs small-cap seasonality map (click to zoom). Positive (negative) values indicate large cap (small cap) relative strength.

Note that these seasonality biases only exist after adjusting for differences in volatility between large caps and small caps (AKA “market neutral” or “beta neutral”) so they are only relevant to either (a) pairs trading, or (b) choosing between large and small caps after an investor already had a view on the market as a whole (read more).

The large vs small-cap studies included on this map are: calendar month, intra-month, intra-week and individual holiday seasonality.

Happy Trading,
ms

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2 Responses to “Seasonality Map for September, 2011”

  1. 1 John

    At Jackson Hole, Fed decided Sep meeting would be a 2-day event, thus announcement comes on Wednesday, Sept 21.

    Does this change the table? Do you differentiate between 2 day and 1 day Fed meetings?

    Thanks

    • 2 MarketSci

      Hello John – yes, it would matter. Good catch. I prep’ed this table a week ago or so and didn’t snap to the FRB meet change. 09/20 should read 0% and 09/21 +75%. I’ll get an updated map out asap. michael


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