EPS100Momentum's  Instablog

by Tyler Craig on April 6, 2011

Much has been written about seasonal patterns in the financial markets.  Some months and particular days of the month have a tendency to exhibit more bullish behavior than others.  In addition, certain sectors and industries may have specific times of the year when they consistently catch bull fever.

Pop Quiz!  In which month has the Dow Jones Industrial Average captured the highest average return over the past 20 years? While December is likely the most popular response, Santa’s stomping grounds actually come in second behind April.  Yes, apparently April showers not only bring May flowers but also a bevy of buying.  Over the past 20 years the Dow has captured an average gain of 2.7% in April – outrunning the second best month, December, by a large margin (2.7% vs. 1.8%). (Hat Tip Bespoke)

With the ease at which we can crunch numbers and discover historical patterns out of seemingly random market movements, forecasts for what the market should do on any given week or month abound.  It’s not difficult to find data.  Back in 2007 I purchased a copy of the 40^th Anniversary Edition of the Stock Trader’s Almanac which offers up a plethora of historical trading patterns.  It was my first exposure to in-depth analysis of market history and reading it was at times like drinking from the proverbial fire hose. Lest you think seasonality is foolproof, remember the ubiquitous disclaimer that past performance is not indicative of future results.

How then should we treat these forecasts?  I suggest viewing these patterns as simply one piece of the puzzle, one more item of evidence tipping the odds in favor of either the bulls or bears.  In analyzing current market conditions the historical performance of April is yet one more factor supporting the bullish argument.