The Stock Trader’s Almanac offers tables that help investors see seasonal trends in the market. It makes the case that seasonality works as long as you take note of the times that it doesn’t.
 
Other analysts tie the seasonality of markets to the likelihood that certain events associated with the seasonal move will recur. They measure this likelihood within the context of a 10-year data analysis. In their analysis, a 70% historical success rate of a seasonal trend offers confidence it may be profitable again.
 
Seasonal analysis may be positioned as the connector between fundamental and technical analysis. This is a fit because certain technical patterns such as a head and shoulders pattern tend to work 70 – 75% of the time.
 
Whether you are a proponent of fundamental, technical, or seasonal analysis, the case can be made that investing at regular times of the year and rebalancing as the season ends might have some merit.
 
If we look back at major market corrections such as the 1990s tech bubble or the 2008 credit crisis, we can see a cyclical—or seasonal—forces at work. The chart below shows how ignoring these cyclical or seasonal effects can result in a market correction.
In the grander scheme of things, investor group mentality can continue a cycle—or a season—well past its prime. As the uptrend progresses (Bullish Phase I), institutional or inside investors may begin to take profits.
 
Retail and other investors may get on the band wagon since they feel confident that the up-move can only continue, resulting in Bullish Phase II. They hold out, wondering if the move is solid; then they buy, often at the point where the cyclical underpinnings are turning.
 
Investors who are late in the game continue pushing the stock up, well beyond its fundamental justification and experience most of the damage when the frothy linear trajectory finally corrects itself.
 
This same cyclical effect applies to individual stock holdings, indices, sectors, or other groups—like subprime mortgages and over variable time frames. 
 
Seasonal investing can be an alternative way to dollar cost average. If you put money in at regular intervals over a long-term investment horizon, the seasonality may offer the best average entry point over the course of that period.
 
Conversely, taking profits as the season traditionally comes to a close fosters a cyclical type of rebalancing which may make sense for some portfolios.
 
Whether such a combination would work for your clients would probably involve further analysis. It would definitely involve assessing how well such a strategy would fit your clients’ long-term objectives. Getting your clients to think differently about a strategy can add freshness to your approach and can also differentiate you from your peers.

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