To OTC Journal Members:
 

Our Season Is Coming: Seasonality in the Markets: Are you Ready?

Winter, Spring, Summer, and Fall- The four seasons. In some places, the seasons are more pronounced than others. For example, Winter, Spring, Summer, and Fall are more climatically different in Boston than San Diego. 

All businesses have an element of seasonality to them, as does the stock market. The seasonality in the stock market is far more pronounced than most people realize. It's more like Boston than San Diego, but you have to step back and look at it to get the picture. It doesn't hit you like winter and summer.  Think I'm just guessing or making this up? Let's look at the hard facts.

Before moving on however, now would be a great time for you to go to the brand new OTC Journal (www.otcjournal.com) site and watch the 2 minute video entitled "Seasonality in the Markets". Click the Research tab on the player, or scroll across the bottom to the very last video. It's a great resource, and I hope you take advantage of it.

Now, on to the facts. Here's a chart of the Russell 2000- the index that is probably the best measure of the performance of small stocks. It goes back to the beginning of 2005.

With the exception of May of 2005, note the Russell 2000 drops rather precipitously in May and June of '06 and '07. Conversely, the index goes climbs beautifully in October of '05, July of '06, August of '07, and now August of '08 as of today.

I believe the months of August and September should be used as positioning months- the months when you take your positions for the Fall/Winter run, which usually starts in October.

In fact, all post World War II Bear Markets have died in October- those include 1946, 1957, 1960, 1962, 1966, 1974, 1984, 1987, and 2002.

This year there is a pretty ugly and nasty bear to kill. If Friday's action in the markets is any indication, this Bear could be ready to go into hybernation- The energy crises might be behind us, but we still have to face the real estate/liquidity crises.

Here's more factual information for you to digest. The following is a table of the average rate of appreciation in the Russell 2000 month by month as measured from 1998 to 2008:
 

Kind of eye opening, isn't it? September is down on average, then we turn the corner in October and roar in November until Santa arrives in December.

Why does this happen? Watch the video, and I'll explain my theories. Spend 2 minutes. You'll find it at OTCJournal.com.

I'm getting ready for some very exciting post Labor Day events. My first new idea in some time will come put in mid September- it's an alternative energy company making money hand over fist that no one knows about. Stand by. More trading ideas to come as well.

Start thinking about your post summer moves- do you really love any of the small stocks you own? If so, consider being fully invested in them by the end of September and take advantage of the seasonality in the market.

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