For 46 years the new edition of the Stock Trader’s Almanac has been released early in the fourth quarter. And for the past twelve years we have been preparing Almanac Investor readers for the annual October ETF buying spree. This year is no exception, but before delving into October’s seasonalities, let’s do a quick review for new and veteran readers alike.
Every year while preparing the annual Almanac, we revisit and analyze our sector seasonalities (STA 2014 pages 92 to 96) in order to make adjustments for any new or developing trends. For the most part, seasonality has been on track since September 2009. As a result there have only been a few minor revisions made to our Sector Seasonalities table over the past few years. The mere fact that there were just a few changes validates these seasonal patterns. If they did not repeat on a regular and recurring basis then they would not be seasonalities. Years of sector research allows us to specify whether the seasonality starts or finishes in the beginning third (B), middle third (M) or last third (E) of the month based upon the number of trading days in the month.
These entry and exit points will be the basis for our seasonal trades over the coming year. They are guidelines, as we generally look to enter new positions before the start of the favorable period and exit before its end. Occasionally a trade is closed out well in advance of the seasonality’s end. An outsized advance may trigger a trade at the recommended auto-sell price (a price target based upon past historical performance of the specific seasonality) or should strength fail to materialize, a stop loss could be reached.
There are eleven sector seasonalities that enter their favorable periods in October. The following trade ideas are made based upon these seasonalities. Currently, all buy limits are just below current market levels. The market had struggled in August as QE tapering concerns and Mideast tensions escalated, but these concerns are easing. In fact, NASDAQ has already broken out to new recovery highs improving the probabilities that DJIA, S&P 500 and Russell 2000 will soon follow suit.
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By Christopher Mistal