An understanding of stock market seasonality could help you understand the current volatility.
Not sure if we’re in a bear market? An auction earlier this week in London answered that question when the world’s biggest teddy bear (11 feet tall) went under the gavel at auction house Bonhams… and fetched a princely $31.
Other teddy bears failed to generate fiscal excitement too. Mr. Bean’s (British comic Rowan Atkinson) “Teddy” sold for $340. Margaret Thatcher’s childhood bear fetched $135.
On this side of the pond, the markets are equally as bearish. But that’s not a real surprise; if you’re up on the seasonality of the North American markets. As per usual, autumn began a little early for stock markets.
Falling share prices are the norm once September begins. Like grammatical anomalies, the markets also have their fair share of seasonal patterns you may not be familiar with. For example, October has traditionally been a very good month on the whole, and is considered the “gateway to some of the best months of the year, for investing in stocks.”
Things may look bearish out there right now. But an understanding of stock market seasonality could help you understand the current volatility… and help you find the best entry and exit points.
Or so a recent article I was reading noted.
According to Brooke Thackray, author of the forthcoming book, Thackray’s 2009 Investor’s Guide, September is a low point on both the U.S. and Canadian markets.
“September is the worst month of the year, typically,” says Thackray. “That’s when the biggest drops in the market can occur.”
According to Thackray, September is the month when penny stock investors should be defensive. “People are coming back from vacation and examining their portfolios, they’re taking a look at economic growth….”
Still, seasonality is not a perfect metric. In fact, Thackray thinks seasonality should be best thought of as a rough guide to month-by-month market behavior.
Seasonal stock market patterns do offer hope to those penny stock investors who are stressed about the dramatic losses the overall markets have experienced of late. October has proven to be a solid month, and is considered a lead-in to much better returns, on average, in November, December, and January.
“In September, you tend to have downdrafts,” said Thackray. “In October, you tend to have the market turning around.”
Thackray suggests investors buy into the market at the end of October and wait to sell until a few days into May. “The first few days of May tend to be very positive. If you add those on, you tend to get a little more juice.”
For speculative penny stock investors, seasonal patterns are very useful, especially if you do a lot of trading. Buy-and-hold penny stock investors can also fair well.
In a nutshell, September is typically a bad month for stocks. Stocks also tend to do better once they get through the early fall.
For astute penny stock investors, the current bearish sentiment has opened up the window of opportunity to buy penny stocks for both the short and long term.
