Ramblings about seasonality

Today's selloff didn't really do much to change the sideways action we've been seeing. I still think 1000-1010 lies ahead but it's certainly possible to see 1030-1040 first. It’s an edgeless tape for me and I still haven't done a damn thing and that's fine by me.

Notice again how any meaningful downside action occurs within the first hour of trading not allowing anyone except overnight holding shorts to take advantage. This is bull market correction action. And it seems anytime I get ST bearish on the market it gaps down the next trading day without allowing me to take advantage. It seams Mr. Market is teasing me. That's fine. I know better than to chase a gap down out of frustration of missing it only to get whipsawed shortly after. It's usually a poor risk/reward trade to chase a gap down when the market is in a bull trend. The only times I would consider it worthwhile is if the market was extremely ST overbought with favorable intraday put/call readings and preferably a good catalyst. Wait for the right pitch, play only premium hands.


There's a lot of talk about the dreaded month of September...and there usually is. Historically it's the worst performing month of the year and last year's performance reinforced this notion big time. I'm not a big believer in seasonality because there's little fundamental arguments behind it and if there was, lots of people would be making tons of money doing it which I don't see happening. Do you see any seasonality specialty hedge funds out there?

Seasonality doesn't jive with the core principle of my market religion (the motto of this blog) because it doesn't take into account how people are positioning themselves. If too many people are playing a seasonality trend the market will do what it does best which is punish that crowd even if the seasonality trend actually has sound fundamental backing.
If seasonality confirms what I believe market action and indicators are pointing towards anyways, then it will add a bit more to my conviction level but by in large, I will ignore seasonality if market action and indicators oppose it. Seasonality trends in the market are in my view, mostly due to coincidences. For example I read once that someone did a study to find out what was the most highly correlated variable with the S&P 500 using historical data. Guess what it was? Butter production in Bangladesh. Data mining will produce these sorts of relationships which such as this example has no fundamental basis and was the result of coincidence.

So, will September be a bad month? Well, if it is, it's going to be because of the arguments I presented in the previous few posts, NOT because September is historically such a bad month.

Seasonality trends may result in a knee jerk reaction as investors/traders try to take advantage. But, as I said, if the market is poised to go the opposite way, it's going to go that way and any knee jerk reaction will likely get quickly undone.