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An Excellent Seasonal Buying Opportunity in Silver Lies Directly Ahead

June 26, 2020

An Excellent Seasonal Buying Opportunity in Silver Lies Directly Ahead

Gold’s Little Brother

Today I want to put a popular precious metal under the magnifying glass for you: silver.

Silver, often referred to as the “little brother” of gold, has a particularly interesting seasonal pattern I would like to share with you.

Shiny large good delivery door stops made of silver – about to enter interesting seasonal phase. [PT]

Silver’s seasonality under the magnifying glass

Take a look at the seasonal chart of silver. In contrast to a standard price chart, the seasonal chart shows the average pattern of silver in the course of a calendar year. For this purpose, an average was calculated from the price patterns of the past 52 years. The horizontal axis shows the time of the year, the vertical axis depicts price information.

Silver price in USD per troy ounce, seasonal pattern over the past 52 years – Silver starts to rise at the end of June

Source: Seasonax

As the chart illustrates, there are two favorable seasonal phases in silver. The first one begins in mid December (i.e., on the right hand side of the chart) and lasts until February (due to the turn of the year on the left hand side of the chart; arrow to the left).

The second one starts at the end of June and lasts until the end of September (arrow to the right).

In addition I have highlighted the beginning of this second phase with a circle.

The silver price rose in 31 of 52 cases!

The imminent strong seasonal period in silver begins on 28 June and ends on 21 September. A positive performance was recorded in 31 of the 52 cases under review.

During this phase silver generated an average gain of 4.87 percent, which corresponds to an annualized return of 22.71 percent.

…click on the above link to read the rest of the article…

Revisiting the Halloween Effect

November 9, 2018

Revisiting the Halloween Effect

From Crash Danger to End-of-the-Year Ramp

Knock, knock… it’s Jack, from Wall Street

 

After the last day of October, the month that has investors in fear of the next big stock market crash follows Halloween  – and while this is a spooky day, it actually marks the start of a period that typically tends to yield promising returns for investors.

What is commonly referred to as Halloween Effect or Halloween Strategy is the fact that stock market returns on average turn noticeably positive from late October onward.

This phenomenon has been widely discussed well beyond the confines of experts on seasonality like ourselves and was inter alia subject of several academic studies, with a number of well-known scholars providing valuable contributions (Jacobsen & Visaltanachoti; Haggard & Witte; Maberly & Pierce and many others)*.

We are revisiting the topic in this edition of Seasonal Insights.

The Halloween Effect is a Global Phenomenon

We begin by looking at the first part of the Halloween Effect with the help of the  Seasonax Web App (note: details on the web app can be found here; readers of Acting Man qualify for a special discount)

We have analyzed three of the most important stock indexes from around the world to find out whether they exhibit a common pattern. In all three cases the time period from October 31st  to January 3rd was reviewed.

Please note that these indexes have been examined with the aim of showing a general trend. One can filter out individual stocks that exhibit the same seasonal patterns, but generate much higher returns.

The first index is the DAX, a composite of the 30 largest German companies. It shows a distinct seasonal pattern in the respective time-period with 77.78% winning trades of and an average annualized return of 34.05%.

…click on the above link to read the rest of the article…

How Dangerous is the Month of October?

October 8, 2018

How Dangerous is the Month of October?

A Month with a Bad Reputation

A certain degree of nervousness tends to suffuse global financial markets when the month of October approaches. The memories of sharp slumps that happened in this month in the past – often wiping out the profits of an entire year in a single day – are apt to induce fear. However, if one disregards outliers such as 1987 or 2008, October generally delivers an acceptable performance.

 

The road to October… not much happens at first – until it does. [PT]

Nevertheless, the prospect of such an extremely strong decline is scary: what use is it to anyone if markets typically perform well in October most of the time, when  the phenomenon of the gains of an entire year evaporating in the blink of an eye is repeated? What about intermittent losses? We will apply seasonal analysis to the issue in order to shed light on whether one should adopt a risk-averse stance in October.

The Biggest Crashes Tend to Happen in October

Let us take a look at the largest declines in recent history. The following chart shows the twenty largest one-day declines in the Dow Jones Industrial Average. Crashes that occurred in October are highlighted in red.

The largest one-day declines in the DJIA in history – almost half of the crash waves occurred in October,  including the two largest ever recorded on 19 Oct. 1987 and 28 Oct. 1929. The fourth largest decline happened on 29 Oct. 1929 hence these two days of consecutive declines were actually worse than the record one-day plunge in 1987 (similar to 1987, the market had already fallen sharply in the week immediately preceding the crash). [PT]

9 of the 20 strongest one-day declines happened in October. That is an extremely disproportionate frequency. In other words, October has a strong tendency to deliver negative surprises to stock market investors in the form of sudden crashes. What does this mean for us as investors?

…click on the above link to read the rest of the article…

US Stock Market: Conspicuous Similarities with 1929, 1987 and Japan in 1990

March 4, 2018

US Stock Market: Conspicuous Similarities with 1929, 1987 and Japan in 1990

Stretched to the Limit

There are good reasons to suspect that the bull market in US equities has been stretched to the limit. These include inter alia: high fundamental valuation levels, as e.g. illustrated by the Shiller P/E ratio (a.k.a. “CAPE”/ cyclically adjusted P/E); rising interest rates; and the maturity of the advance.The end of an era – a little review of the mother of modern crash patterns, the 1929 debacle. In hindsight it is both a bit scary and sad, in light of the important caesura it represented. In many ways the roaring 20s were the last hurrah of a world in its death throes, a world that never managed to make a comeback. The massive expansion of the State that had begun in the years just before WW1 resumed in full force as soon as the post-war party on Wall Street ended. The worried crowd that formed in the streets around the NYSE in the week of the crash may well have suspected that the starting gun to profound change had just been fired. [PT]

Near the end of a bull market cycle there is always the question of when a decline will begin, and above all, how large will it be. I believe it possible that the retreat in prices will begin soon and that it could possibly even start out with a crash. I will explain in the following what led me to draw this conclusion.

2015 – 2018: the S&P 500 Index Moves Up Along a Well-Defined Trend Line

…click on the above link to read the rest of the article…

1987, 1997, 2007… Just How Crash-Prone are Years Ending in 7?

October 12, 2017

1987, 1997, 2007… Just How Crash-Prone are Years Ending in 7?

Bad Reputation

Years ending in 7, such as the current year 2017, have a bad reputation among stock market participants. Large price declines tend to occur quite frequently in these years.

Sliding down the steep slope of the cursed year. [PT]

Just think of 1987, the year in which the largest one-day decline in the US stock market in history took place:  the Dow Jones Industrial Average plunged by 22.61 percent in a single trading day. Or recall the year 2007, which marked the beginning of the GFC (“great financial crisis”).

Given that the current year is ending in 7 as well, is there a reason to be concerned, or is the year 7 crash  pattern a myth?

The Pattern of the Dow Jones Industrial Average in the Course of a Decade

Below you can see a chart of the typical pattern of the DJIA in the course of a decade. This is not a standard chart. Instead it shows the average price pattern of the DJIA in the course of a decade since 1897.

The horizontal axis shows the years of the decade, the vertical axis the average performance of the index. Thus one can discern at a glance how the index typically performs in individual years depending on what their last digit happens to be.

 

DJIA, typical pattern in the course of a decade since 1897. Years ending in 7 did tend to be marked by large setbacks on average.

As you can see, in the first half of the decade, i.e. in the years ending in 0 to 4, the DJIA barely rose on average. By contrast, in years ending in 5 (highlighted in yellow above) the performance of the index tended to be particularly strong.

…click on the above link to read the rest of the article…

The Biggest Stock Market Crashes Tend to Happen in October

October 3, 2017

The Biggest Stock Market Crashes Tend to Happen in October

October is the Most Dangerous Month

The prospect of steep market declines worries investors – and the month of October has a particularly bad reputation in this respect.

Bad juju month: Statistically, October is actually not the worst month on average – but it is home to several of history’s most memorable crashes, including the largest ever one-day decline on Wall Street. A few things worth noting about 1987: 1. the crash did not presage a recession. 2. its extraordinary size was the result of a structural change in the market, as new technology, new trading methods and new hedging strategies were deployed. 3. Bernie (whoever he was/is) got six months.

Regarding point 2: in particular, the interplay between program trading and “portfolio insurance” proved deadly (the former describes computerized arbitrage between cash and futures markets, the latter was a hedging strategy very similar to delta-hedging of puts, which involved shorting of S&P futures with the aim of making large equity portfolios impervious to losses – an idea that turned out to be flawed). Too many investors tried to obtain “insurance” by selling index futures at the same time, which pushed S&P futures to a vast discount vs. the spot market. This in turn triggered selling of stocks and concurrent buying of futures by program trading operations – which put more pressure on spot prices and in turn triggered more selling of futures for insurance purposes, and so on. The vicious spiral produced a one-day loss of 22.6% – today this would be equivalent to a DJIA decline of almost 5,000 points. Due to circuit breakers introduced after 1987, very big declines will lead to temporary trading halts nowadays (since 2013 the staggered threshold levels are declines of 7%, 13% and 20%; after 3:25 pm EST the market is allowed to misbehave as it sees fit). Interestingly, program trading curbs were scrapped again.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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