As every active trader knows, financial markets follow all sorts of cyclical and seasonal factors that create short-term and long-term trading opportunities. One of these patterns is the “end of the summer” rally, whereby markets rally towards the end of the summer — propelled by the returning of traders and investors from vacations that increases market participation, pushing up market volume, and equity prices. Some years, end of the summer rally is suppressed by cyclical or structural factors, as was the case in 2008 and 2009 with the subprime crisis. Other times, the end of summer rally can be supported and re-enforced by a short-term market recovery, accommodating monetary policy, and a flurry of M&A activity, as is the case in the current market environment.
While not a certain bet, traders and short-term investors who want to capitalize on this market pattern may want to consider five trades:
2. Buy high tech stocks like Research in Motion (RIMM) and Nokia that may be take-over targets by a company like Microsoft (NASDAQ:MSFT) or a Korean manufacturer who want to keep up with Apple and Google in the smart phone war.
3. Buy badly beaten financials like JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C), and Regions Financial (NYSE:RF) — the banning of short-selling in Europe will help cool-off the negative sentiment for the sector, at least for the short-run.
5. Buy high-dividend paying stocks — with the Fed promising to keep short-term rates near zero for the next two years, high dividend paying stocks like Pfizer (NYSE:PFE), Merck (NYSE:MRK), AT&T (NYSE:T), and Verizon (NYSE:VZ).
Disclosure: I am long CVX, MRO, OIH, PFE, T, VZ, C, JPM, RF.