Microsoft has shown strong seasonal tendencies, with most years showing a decline in the 1st quarter and a rally in the 4th quarter.

How Seasonality Effects Stocks
When we think of seasonality most of us think of Commodities. Agricultural products typically are higher in the Fall. Hence the saying, “Buy in the Summer, sell in the Fall.” But did you know that many stocks also follow seasonal tendencies?

Take a look at the charts for Microsoft on the right. In five out of six years from 2002 through 2007, Microsoft declined January-March and rose in October- November. And so far, 2008 is following the same pattern.

How can we profit from this information? Clearly, it would be best to only trade short signals in the first quarter and long signals in the fourth. Or, at least, we should refrain from taking counter-seasonal trades in Microsoft.

Why do stocks behave this way? In the case of Microsoft, it is most likely due to the fact that companies buy new technology early in the 4th quarter for the coming year. But other companies are seasonal for other reasons.

One of the most interesting cases we discovered was Oracle (symbol ORCL) which has gone up in June nine out of the past ten years. Why? Their fiscal year ends May 31, so they book as many orders as they can by that date, leading to increased earnings.

By identifying those stocks that are poised to go up or down based on seasonal tendencies, you increase your odds for making money. You could in fact base an entire trading approach on this concept.

Put the Power of Seasonality to Work Today

Seasonal Grid showing all months for all years being studied.

We have created a powerful new tool that plugs right into OmniTrader to take advantage of the seasonal tendencies. It’s called the Seasonality Module and with this module installed, you can instantly see seasonal tendencies in any chart you bring up!

The Seasonal indicator is easy to use and intuitive to understand. Bring up the Seasonality window and instantly any chart you plot in OmniTrader will be analyzed for seasonal tendencies.

Bullish or bearish zones are clearly marked, with strong seasonal tendencies highlighted in a strong color. The module is totally configurable—you can test as many years as you like. And, the entire analysis can be performed on ten years of data in less than a second.

Chart with Seasonality Indicator and Monthly Seasonality. Note how the indicator would have kept us out of the Short Trade in April while confirming the other trades – all of which made a profit. The confirmed Seasonal Trades are circled.

To the right is the analysis on Intel. Note the bright green and red zones. These are the strong seasonal tendencies. Click the Chart tab to see the seasonal (average) chart.

OmniTrader charts also display the seasonal tendencies in the new Seasonal indicator, which can show quarterly or monthly seasonality. Just activate this indicator, and at a glance you can tell if the stock you are about to trade has a seasonal bias. This simple check could make or save you thousands of dollars.

Awesome Prospecting Power

Here we see the Seasonal Indicator in both the charts and in a column in the Focus List. We sorted the column to bring the highest seasonal percentage movers at the top. Both DELL and AAPL show high seasonal gain percentages. When the market begins to rally, these stocks and others with strong seasonal tendencies should be among the biggest winners.

Using the power of the Focus List, you can add Seasonality to a column of the list and see which stocks with a buy signal ALSO have a bullish seasonal tendency.

Using the new indicator column feature in OmniTrader 2009, you can add specific columns for the Focus List that instantly tell you how well the stock is matching its seasonal trend.

Once added, the Seasonal indicators will be calculated each time you run the To Do List. It’s then a simple matter to sort and find those stocks with the highest seasonal trends that ALSO have buy or sell signals.

The other way to use Seasonality is as a confirming tool. Just add the columns and check them before you buy or sell, to make sure you are not trading opposite the seasonal tendency.

A Powerhouse in This Market
You may be wondering if Seasonality is helpful in the increased volatility we have been seeing. Absolutely! When the entire market goes down, even stocks with strong seasonal tendencies will be dragged with it. BUT, when the market starts back up, it is those stocks with a seasonal, upward bias that are most likely to experience an explosive upside move. Needless to say, this tool could help you make a LOT of money in the coming months.

The Seasonality Module is a great addition to OmniTrader 2009. All it takes is one good trade— or avoiding one bad one—to pay for it!