Tim Knight | Jul 30, 2013 12:22AM ET
A few years ago I attended a seminar where Jake Bernstein spoke about seasonality. This really appealed to me because of the statistical nature of seasonality. You had your odds and could bet accordingly. From there I bought a few of Jake’s books and did a little more reading on the subject. I subscribed to his newsletter for a while and probed the internet for more information. I found that there are a lot of websites that provide great information on seasonality. What I discovered is that seasonality works! Except when it doesn’t.
The interesting thing about statistics is that they can be shaped, morphed and eventually strained into making you think there is something there when there really isn’t. An older but good book on the subject is How to Lie with Statistics by Darrell Huff. When I first read it back in the 90’s, it was quite illuminating. Since then, I have come to understand that the responsible use of statistics is a powerful tool and that the misuse of them is also a powerful tool. There is a temptation to read too much into market statistics just the same way that there is a temptation to read too much into technical indicators. Statistics and indicators (many based on statistics themselves) really fall into the category of “it is what it is”. Over-reaching interpretations won’t help you over the long run.
In a table shown below (from seasonalodds.com), we see that over the last 20 years, the S&P has finished positive in the month of September 55% of the time. That means that if you had taken a trade where you bought the S&P on the first day of September and you sold it on the last day of September, and you did this every year for the last 20 years, you would have won 11 times and lost 9 times. That’s a positive edge. At least that’s how it appears on the face of it. But also in that same chart, we see that the average return for September over those 20 years is -0.13%. This is because September, on average, is the worst month of the year to be long in the market (you can Google it as there are dozens of articles pointing this out – a recent one is JPMorgan is exiting physical commodities trading, the bank said in a surprise statement on Friday”. The article also states that “The firm will explore “a sale, spinoff or strategic partnership” of the physical business”. So like any business that is getting out of carrying a specific item, they are reducing inventories and looking at strategic alternatives. The how and why of which we will not know until much later. That information is proprietary to JPM business operations.
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