Times of the Year -- By: Bill Kraft
Copyright 2008, CutLoss, Inc., All Rights Reserved
Bill Kraft
Editor |
As we reach Labor Day and the end of the summer vacation season, it
occurred to me that it might be an appropriate time to examine some of
the influences of the calendar on stock and option trading. While it
may be surprising to some, time of year can actually have an influence
on market behavior. I don't mean to suggest that the season should
control our trading; I only mean that it doesn't hurt to pay attention
to the calendar as we trade. For example, many investors are aware of
the phenomenon of tax selling in early December, for example. That
often is a good time to unload dogs and gain the benefit of a tax loss
for the year. Often, following the tax loss selling there is what has
become known as the "Santa Claus" rally leading into Christmas and the
beginning of the New Year.
Another calendar related circumstance is the practice of "window
dressing" in which many mutual funds and portfolio managers have engaged
over the years. Funds generally report performance quarterly to their
shareholders and, in order to make themselves look good, may sell the
losers before the report is compiled and add some winners so that it
looks like the fund is in great shape. Sometimes, stocks that are not
readily recognized may dropped and more well known names added to the
portfolio so the investor can see what fine companies are held by the
fund. This window dressing can lead to relatively heavy trading in some
issues and is completed before the quarterly reports go to press.
Since many of the large players vacation at the Hampton's or in the
south of France or some other wonderful place during the summer, that
season can be marked by some low volume and, therefore, high volatility
trading. It seems to me that the few weeks leading up to Labor Day are
particularly prone to that type of activity.
Certain months of the year also seem to have a general tendency
(though definitely not always) to experience dips or reduced
volatility. Those are the months following earnings reports. Most U.S.
companies report earnings on a quarterly basis and those reports are
frequently released in the months following the end of a quarter. As
the release of earnings reports approaches, excitement can build and
many trades may be made in anticipation of the report. Depending upon
market conditions and investor anticipation, we may see price begin to
run up as the earnings date approaches. Once the earnings are
announced, there is no longer anything to anticipate so there may be a
fall off in investor interest and in prices in general. Since the
quarters end in March, June, September, and December, many earnings are
announced in April, July, October, and January. The months that follow
those reports are months when the excitement has passed so we want to be
aware of the possibility of reduced interest and market excitement in
May, August, November, and February.
As with most things in the markets, there are no hard and fast
rules as to what to do in those months. It is simply a factor about
which an investor should have some awareness.
Good Trading!
Bill Kraft
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Consolidated Edison Inc. (ED)
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Have a great weekend and we'll trade next week.
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Here's a look at a trade Bill is currently working on:
IntercontinentalExchange, Inc. (ICE)
ICE has shown some pretty good support on the weekly chart
around the $80 level. Implied volatility is still relatively high which
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selling some short term naked puts with a strike just below the July lows.
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Bill Kraft
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
Johnson Controls Inc. (JCI)
JCI has been in a little uptrend since July. A move above
$31 looks like it could suggest that things may keep moving up.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
Advanced Battery Technologies Inc. (ABAT)
I have a small position in ABAT at the moment and realized a
fair profit back in July on the stock. It is now retesting support and
if it holds and I see a bounce, I will consider adding to my position.
Good Trading!
Bill Kraft
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