OK, I’ll admit that it does seem a little early to be looking ahead to February, what with half of January still to go and all. In fact looking ahead to next month now seems especially foolhardy for many of us here in Chicago as February is the month when we hear those words that Cubs fans have come to dread way down deep (“Pitchers and catchers report.”  Ugh, not again!). 

But given the state of things these days, the thought of “looking back” and risking seeing “what is gaining on us” is just a little too frightening.  So at this point we really don’t have much choice but to look “forward” (there’s that word again).  Which reminds me that staring into a $16 trillion dollar and growing abyss isn’t exactly a day in the park either.  But in the immortal  words of whoever said it first, “Reality sucks – deal with it.” 

The one glimmer of good news here us that as it turns out there are a lot of potentially useful “seasonal trends” about to (potentially) unleash themselves in a variety of financial markets.  So let’s take a closer look.

Energy Stocks

The proxy that I use for tracking energy stocks is Fidelity Select Oil Services (ticker FSESX), however, the ETF ticker XLE or the Profunds mutual fund ticker OEPIX are viable alternatives.  Energy stocks tend to show a bullish bias between January Trading Day 19 and May Trading Day 22 (i.e., the end of May).  Figure 1 displays the growth of $1,000 invested in FSESX only during this time frame from 1989 through 2012. 

Figure 1 - Growth of $1,000 invested in ticker FSESX from January Trading Day 19 through May Trading Day 22 (1989 through 2012)

For the record, this period has showed a gain only 5 times in the last 9 years and 2 of the last 3 years have seen some sharp declines within this time frame.  Still, the long-term trend has been quite bullish.  In addition, please remember that there is no rule that says you absolutely, positively have to buy and hold throughout this entire time frame.  One of the best ways to utilize seasonal trends is to use them to tell you what a market “should be doing” and then look for some indication that that market is “is doing what it is supposed to be doing”. 

To put it another way, you can apply some sort of trend-following filter and hold a long position in energy stocks as long as the trend is up, or you could look to buy on dips within this time period.  Figure 2 displays price action for ticker XLE during the late January through May time frame for 2012.  Price action this time around was obviously not very favorable.  Still a simple 200-day moving average filter could have limited the bulk of the risk in this case.

Figure 2 - Growth of $1,000 invested in ticker FSESX from January Trading Day 19 through May Trading Day 22 (1989 through 2012)

Trading Day 19 for January 2013 is 1/29/13.  So presumably we should be looking for opportunities to play the bullish side of energy stocks between then and the end of May.

Crude Oil

Speaking of energy, crude oil has also showed a tendency to rally in late winter to early spring.  Figure 3 displays the gain from holding a long position in crude oil futures from February Trading Day 11 through April Trading Day 15, every year since 1984.

Figure 3 – Gain from holding long one crude oil futures contract from February Trading Day 11 through April Trading Day 15 (1984 through 2012)

This year the bullish period for crude is 2/15/2013 through 4/19/2013.  Now in reality the idea of buying a crude oil futures contract and blindly holding it “no matter what” is probably not a wise idea, but looking for ways to play a bullish trend within this time period probably is.

Retail Stocks

The February-March timeframe tends to be bullish for retail stocks.  To wit, Figure 4 displays the growth of $1,000 invested in Fidelity Select Retail (ticker FSRPX) during all of February and March every year since 1989. 

Figure 4 - Growth of $1,000 invested in ticker FSRPX during February and March (1989 through 2012)

FSRPX has showed a gain during the February-March period during 21 of the last 24 years, as shown in Figure 5.  The average gain has been +6% with a median gain of+3.9%.  One word of caution – FSRPX has twice lost more than -8% during Feb-Mar (2001 and 2008).

Alternatives to FSRPX include ETF ticker RTH and the Rydex mutual fund ticker RYRIX.

 Figure 5 – FSRPX % +(-) during February and March

Soybeans

 The soybean crop is most in doubt during the early planting season, when no one knows exactly for sure how many beans will ultimately be harvested. Thus it should not come as a surprise that soybeans have displayed a tendency to rise in price during late winter into early spring.  Specifically beans have showed a tendency to rise between February Trading Day 8 and May Trading Day 7.  Figure 5 displays the gain registered from holding a long position of one soybean futures contract during this time frame every year since 1978.

Figure 6 – Gain from holding long one soybeans futures contract from February Trading Day 8 through May Trading Day 7 (1978 through 2012)

Summary

The “good news” is that there a lot of things that “should” happen in a variety of financial markets in the months ahead.  The “bad news” is that seasonal trends are never guaranteed to play out as expected “the next time around.”  Still, having an idea in advance of what could happen can be useful information in the hands of an alert investor.

So as a public service, let me just say “WAKE UP!!!!!!”

Jay Kaeppel

Staff Writer and Trading Strategist

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