I wrote recently about the fact that gold stocks appeared to be oversold and due for some sort of a “pop” (http://www.optionetics.com/marketdata/article.aspx?action=detail&aid=24299). I also hinted at the time that that was not quite the time to act. Since then gold stocks have declined about another 5%.
But as we head into the month of May we enter an “interesting” period “seasonally speaking.” For gold stocks in the month of May and into June have exhibited some “interesting” behavior. Well OK, for the record, I suppose this depends on your own definition of the word “interesting.” In addition, in the interest of full disclosure - and although I am loath to ever suggest that anyone not read something I’ve written - I will tell you that if you suffer from an intense hatred of statistics of any kind, chances are you won’t much enjoy this week’s piece. There – you’ve been warned.
Upcoming Periods of Interest for Gold Stocks
There are three time periods we will consider.
April21 – this refers not to the date of April 21 nor to the 21st trading day of April. From here on out the label April21 refers to the profit or loss registered by Fidelity Select Gold (ticker FSAGX) over the prior 21 trading days as of the last trading day of April. So simply take the closing price for FSAGX at the end of April and determine how it has performed over the previous 21 trading days.
MayTD2-15 (short for May Trading Day 2 through May Trading Day 15) – this refers to the period made up of the 2nd through the 15th trading days of May. For the record this period begins at the close of trading on the first trading day of May and extends through the next 14 trading days (not calendar days).
MayTD15-JunTD9 (short for May Trading Day 15 through June Trading Day 9) – this refer to the period that extends from the close of trading on the 15th trading day of May through the close of trading on the 9th trading day of June.
Period Results: May TD 2 through May TD 15
The MayTD2-15 period has showed a bullish tendency over the past 23 years. Figure 1 displays the growth of $1,000 invested in FSAGX during MayTD2-15 every year since and including 1989.
Figure 1 – Growth of $1,000 invested in FSAGX during May Trading Day 2 through May Trading Day 15 (1989-2011)
As you can see the net result has been a gain, although by no means has it been a straight line advance. To note:
- Up 15 times; down 8 times
- $1,000 invested in FSAGX only during this period grew to $2,042 (+104.2%)
- Median result: +5.2%
- Maximum gain: +22.3%; Maximum loss: -12.5%
- If April21 showed a loss then MayTD2-15 was up 10 times (77% of the time) and down 3 times.
- If April21 showed a gain then MayTD2-15 was up 5 times (50%5 of the time) and down 5 times.
The bottom line here:
The trading day 2 through trading day 15 of May period has showed a tendency to be bullish, particularly if gold stocks have declined heading into this time frame. Figure 2 displays the growth of $1,000 invested in FSAGX during the MayTD2-15 period only if the April21 period shows a loss.
Figure 2 – Growth of $1,000 invested in FSAGX during May Trading Day 2 through May Trading Day 15 only if the 21 trading days ending at the end of April shows a loss (1989-2011)
Period 2: May TD 15 through June TD 9
The MayTD15-JunTD9 period has showed a bearish tendency over the past 23 years. Figure 3 displays the growth of $1,000 invested in FSAGX during MayTD15-JunTD9 every year since and including 1989.
Figure 3 – Growth of $1,000 invested in FSAGX during May Trading Day 16 through June Trading Day 9 (1989-2011)
As you can see in Figure 3, while results will obviously vary from year to year, the long term trend is fairly unmistakable. To note:
- $1,000 declined in value to $485 (-51.5%)
- Up 8 times; down 15 times
- Median result: (-4.5%)
- Maximum gain: (-2.8%); Maximum loss: (-17.2%)
If MayTD2-15 is up:
- MayTD15-JuneTD9 up 4 times (27%% of the time).
- MayTD15-JuneTD9 down 11 times (73% of the time).
If MayTD2-15 is down:
- MayTD15-JuneTD9 up 4 times (50%% of the time).
- MayTD15-JuneTD9 down 4 times (50%% of the time).
If April21 AND MayTD2-15 are BOTH DOWN:
-May TDM 15 through June TDM 9 up 3 times, down 0 times
If EITHER April21 OR MayTD2-15 is UP:
-May TDM 15 through June TDM 9 up 5 times (25% of the time), down 15 times (75% of the time).
The bottom line here is this:
-If both April21 and MayTD2-15 show a decline (it’s only happened 3 times so granted a very small sample) then gold stocks have rallied in each case during the normally bearish MayTD15-JunTD9 period.
-Under any other circumstance, gold stocks have showed a tendency to decline during the MayTD15-JunTD9 period as displayed in Figure 4 (in fact $1,000 declined in value to $380, a loss of -62%).
Figure 4 – Growth of $1,000 invested in FSAGX during MayTD15-JunTD9 period if EITHER Apr21 OR MayTD2-15 period show a gain
In a nutshell, unless the April21 and MayTD2-15 periods are both negative, traders should be looking at playing the short side of gold stocks during the MayTD15-Jun9 period.
As demonstrated, gold stocks have shown some strong seasonal tendencies during the May-June timeframe. A few things to keep in mind as May approaches:
-Traders may consider a long position in gold stocks after the first trading day of May.
-Traders may be more aggressive if FSAGX closes Apr 30th below $40.34 (this would mean a loss for the Apr21 time period).
-Traders can buy shares of exchange-traded funds ticker GDX or NUGT (which uses 2x leverage), or options GDX or XAU can be used to enter a relatively low dollar risk position.
In any event, it should be "interesting" (Or not, as the case may be.....)
Staff Writer and Author of “Seasonal Stock Market Trends”
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