[True Trader's Sunday School] Here's Santa in July for You

And more jolly market tips. [Image]( [True Trader's Sunday School] Here's Santa in July for You Dear Reader, Last week, we dug into the "father" of all seasonal patterns - the Presidential election cycle. Today, we'll continue that seasonal theme by looking at a few more popular patterns traders sometimes focus on. Chris Rowe Founder True Market Insiders I should point out something that even professional traders sometimes forget… Seasonal Patterns Are NOT Laws of Nature Rather, market patterns are rooted in human nature, and in certain facts about the economy and the business of trading stocks for fun and profit. Take the "January Effect" as an example. According to the Stock Trader's Almanac, 73.2% of the time, the performance of the market in January "predicts" the course of the stock market for the rest of the year. I know... sounds like voodoo. But it really isn't. The January effect happens because of the way institutional investors actually manage their trades. There are certain times of the year when giant hedge funds make investments into the market. Some of them invest at the beginning of each quarter. Others every six months. Some only once a year. But without fail they all invest at the beginning of January. Also, people tend to sell out of losing stocks in December so they can realize short-term losses, thus lowering their tax burden. That's human nature in a nutshell. But let's peel the onion… Savvy investors, who are hip to this pattern will look to sell their losing positions in early December, before everyone else, so they can get a better price. This selling pushes prices lower which induces more selling... which pushes prices lower again, etc. It's a self-fulfilling prophecy. What About the "Santa Clause" Rally? The Santa Claus rally is another seasonal pattern, one that refers to the tendency for the stock market to rally from the end of December (the last five trading days) into January (The first two trading days). According to the Almanac, "Normally, the S&P 500 posts an average gain of 1.3%" during that period. What causes this effect? No-one knows, but theories abound. Some say it's simple holiday joy and optimism. Others claim it's because investors are sinking their year-end bonuses into the stock market. A third camp thinks it's because all the professional investors -- who tend to be bearish -- have started their vacations, leaving the field free for the individual investors who tend to be bullish. In any case, no Santa Claus rally can be a leading indicator of an impending bearish market. Seasonal Effects Are NOT Guaranteed When we say that this or that seasonal effect appears real, we mean that it is one you can rely on it a decent percentage of the time. Take the famous "Sell in May and go Away" strategy (also known as the "Best Months Switching Strategy.") This particular buy-and-hold strategy since 1950 would have turned a $10,000.00 investment in the Dow 30 into about $535,500. A study conducted by The Stock Trader's Almanac shows that from 1950 – 2005, investing in the Dow Jones Industrial Average between November 1 and April 30th and then switching to "risk free" fixed income for the remaining six months each year would have turned $10,000.00 into $534,323. Investing during only the remaining six months would have turned your $10,000.00 into $9,728! So this is a well-established seasonal pattern.     But that pattern doesn't guarantee a particular level of return for any given April... or August... or November. Again, these patterns are not laws of nature. For example, in 2023 the S&P 500 has returned +9.95% from May 1 through July 27. The Nasdaq Composite has done even better, gaining +17% over the same period. Here's the results from all five major averages. Compare that to what we saw in 2022… The "sell in May" pattern could still hold true for 2023. We won't know for another three months. But for now, the market is defying those particular odds. Quarterly Investing The first month in each quarter is usually the best performing month, especially in the first three quarters. (January, April, JULY, and, in recent years, October). Longer-term studies show November as the strongest (beating December by a nose hair). So based on the longer-term studies (starting in 1950 or 1971), it's the first month in each of the first three quarters that's the strongest. But people have caught on to this old trend, and therefore have caused the fourth quarter to fall under the same rule. As a rule, experienced traders deploy certain tricks (such as using the MACD indicator) to stack the seasonal odds even further in their favor. We'll hold off discussing those until later, when we dig into various indicators. Remember to check back next week when we'll start talking about one of THE most important ideas in all of investing – breadth. See you then!   [Here’s Why Small-Caps Will Crush It This Summer]( [Here’s Another Fine Income Play for You]( [A Rational Take on A.I. Mania](     [YouTube]( [Facebook]( [Twitter]( [Instagram]( [LinkedIn]( DISCLAIMER ©2023 by True Market Insiders, LLC, Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of: True Market Insiders, 7901 4th St. N STE 6113 St. Petersburg, FL 33702. The information contained herein has been prepared without regard to any particular investor's investment objectives, financial situation, and needs. 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