Seasonal Musings 2020

[Aitrus]

Ah, I see your confusion.

Reversion to the mean - in the context of Bogle's book and investing in general - refers to the market's tendency to return to the long-term market average. The S&P's long term average is 7-8% per year (after accounting for inflation) since the Great Depression. Individual years diverge widely from that average, and even some snapshots of time (5-year averages, 10-year averages, etc) will be either higher or lower than the long term average. However, given enough time, the market's ups and downs have always come back to stabilize around the 7-8% mark. Once you get past the 20 or 30 year mark, all the numbers equal out to that 7-8% figure.

The goal with seasonality is to increase the long term 7-8% average as much as possible while still managing risk. It does this by avoiding bad times and focusing on the good times - it wins by not losing.

Some people will use a monthly method - such as those I discuss in this thread. Others will try to use the TSP's monthly IFT limits to the fullest, resulting in moves that occur more than once a month. That's where mjedlin66's tspcalc.com website comes in to play - that site features thousands of possible monthly combinations. It's the same seasonal method as I discuss here, but with using more than one move a month. Some of the strategies there have results well into the 20% range per year while still maximizing risk management, at the cost of paying attention to one's TSP account a lot more often than once a month.

Market timing doesn't rely on reversion to the mean in it's methodology at all, but might take seasonality into effect to understand what headwinds or tailwinds the market is dealing with in the current moment.

[Kal1981]

Again, thanks for the context Aitrus. Your readings has been very helpful. Just so I'm clear, when you discussed the 7-8% return, you're referring to the Total Stock Market, yes? The C fund has returned overall 10.63% but in the last 20 years, it's returned 6.07%. Does this mean the C fund will average out back to 10% a year in the next 10 years?

I recently came across this from CBOE (https://www.cftc.gov/sites/default/file ... osting.pdf). In it, CBOE talks about how climate risks will impact the financial markets. For seasonal investing, do we ignore reports like these? Are there any considerations in how external environments affect seasonality, like wildfires in CA and OR?

Ah, I see your confusion.

Reversion to the mean - in the context of Bogle's book and investing in general - refers to the market's tendency to return to the long-term market average. The S&P's long term average is 7-8% per year (after accounting for inflation) since the Great Depression. Individual years diverge widely from that average, and even some snapshots of time (5-year averages, 10-year averages, etc) will be either higher or lower than the long term average. However, given enough time, the market's ups and downs have always come back to stabilize around the 7-8% mark. Once you get past the 20 or 30 year mark, all the numbers equal out to that 7-8% figure.

The goal with seasonality is to increase the long term 7-8% average as much as possible while still managing risk. It does this by avoiding bad times and focusing on the good times - it wins by not losing.

Some people will use a monthly method - such as those I discuss in this thread. Others will try to use the TSP's monthly IFT limits to the fullest, resulting in moves that occur more than once a month. That's where mjedlin66's tspcalc.com website comes in to play - that site features thousands of possible monthly combinations. It's the same seasonal method as I discuss here, but with using more than one move a month. Some of the strategies there have results well into the 20% range per year while still maximizing risk management, at the cost of paying attention to one's TSP account a lot more often than once a month.

Market timing doesn't rely on reversion to the mean in it's methodology at all, but might take seasonality into effect to understand what headwinds or tailwinds the market is dealing with in the current moment.

[Aitrus]

Eventually, yes. Keep in mind that the C Fund's 10.63% is before inflation is factored in, and inflation has a long term average of 2-3% (or so the experts tell us to use when planning for retirement).

Regarding the CBOE report, I haven't taken the time to read it, but I'll give this opinion up front - like everything else climate change related, there is just no way to know for sure. What we do know is this:

- There is currently no commercially viable green energy platform aside from nuclear. Modern nuclear plant designs are vastly safer and better designed from the ones in the early years that resulted in Three Mile Island and Chernobyl. There have been only a handful of new plants since the 70s, with additions or remodels built at various plants over the years.

- There is no replacement other than coal and oil for third-world countries if they want to improve their economies. That's how China and India did it, and that's why nations in Africa have a hard time with it (Africa has only about 3% of the world's coal deposits). The Middle East has sold their oil and didn't use the revenues to build their infrastructures and economies. The Far East has no oil reserves worth mentioning If the Middle East stops shipping that way for whatever reason, then the Far East economies (China, Japan, Korea, etc) will have a very, very hard time. China has decent coal reserves, but they're burning through those like California burns through trees in summer, and coal doesn't fuel modern naval ships, which limits their military potential.

- Until somebody solves cold fusion, or invents a safe way to use hydrogen on par with gasoline / diesel, then we'll likely continue to burn coal and oil.

- Biofuels are a negative-sum game: you get less energy from the finished fuel than you burn in the effort to make it. Plus, it drives up the cost of food, which makes it a double-negative.

Bottom line, I wouldn't bet heavily on green. The numbers from multiple sources say that going green at this stage in our technological development is economic suicide. Elon Musk is making a good show of it, but SpaceX is his real money maker nowadays.

In terms of how it might impact our investments, keep in mind that seasonality doesn't really bet on market sectors, at least not as it's discussed here on TSP Center. For that, visit equityclock.com - they dive more deeply into specific sectors. The C, S, F, and I Funds are all focused on large swaths of the market, and climate stuff is present in all of it except F. I wouldn't worry about the wildfires too much. Only if it were on the level of the Dust Bowl would I expect Ma' Nature to affect the markets to any significant degree.

Of greater impact will be global socio-economics in the next decade - especially the consumption portion of the economy. Watch any of Peter Zeihan's presentations to get an idea of just where the US is at in terms of competition and self-sustainment on the global stage, and what kinds of issues the rest of the world faces that America doesn't. This is why I bet on America so heavily in my investments. It also explains why China is working so hard to improve its economy by any means necessary. Here's a couple of Zeihan's presentations (he has several versions, depending on the business interests of who he's addressing - you have to watch several of them to get the full scope)

Peter Zeihan, Mar 2019, presentation is focused more on agriculture and oil https://www.youtube.com/watch?v=JDnlsjxqqCU

Peter Zeihan, Sep 2019, presentation is focused more on population demographics, oil, and likely world conflicts https://www.youtube.com/watch?v=sfyrURHpUcM&t=2070s

[Kal1981]

Aitrus, I have no intentions to invest outside of index funds/TSP. I guess my concern is the longevity of seasonality trends with the unknowns of “climate” but I suppose through out history, there were always some unknowns that could have impacted markets. From the report, I am more worried about the cascading effects. For example, if I use fire or hurricane prone areas, consumers will pay a higher premium for coverage which will impact their disposable income. Since spending is a big part of GDP, would it hurt the US economy? For the insurance industry, more frequent and costly claims will hurt the bottom line. Warren Buffett’s “test” of stock market valuation is x-times the GDP. If GDP is lower, would it also warrant a lower stock market valuation thus reducing our returns? I’m new to seasonal trading so this may or may not be a concern in the long run.

[Aitrus]

My intention wasn't to suggest that you were investing outside of index funds / TSP. I only presented those stats to show where I think the I Fund will be going in the future. My "bet on American" stance means that I think that the C, S, and F Funds are the most reliable options within TSP.

No worries about being new to the method. We're all still learning. The moment we stop learning because we think we understand it all is inevitably the moment that Karma will trip us up. Neil deGrasse Tyson has said: "One of the great challenges of this world is knowing enough about a subject to think you're right, but not enough about the subject to know you're wrong." I'm never going to say that I know everything there is to know about this stuff, nor that I'm 100% right about it. But I think I have done a fair bit more research and study of the raw data on this than many investors have.

It may be that my methodology is completely wrong and only works 75% or even 50% of the time. But it's also possible that if one buy-and-holds all their career only to experience another 2008 crash a year just before they retire, they are in a hard place as well. I prefer to have an active hand in what I'm doing, and have studied the numbers thoroughly. Thus, if the system I use based on history has an expected 30% fail rate and still achieves 15% on average, then there's a lot of buffer room. If the system (with the 30% factored in) works only 75% of the time, I'm still ahead of the market. If it's an absolute disaster and by pure chance works just 50% of the time, then I'm matching the market and haven't lost anything. Then consider MJ's tspcalc.com results, and the 15% theoretical goes much higher, thus adding more room for error.

One of the things that Zeihan points out is the fact that Millennial consumption is very strong, sufficient to be the primary driver behind the 2008 recovery. According to him, it wasn't Obama's policies but rather it was Millennial spending that pulled us out - and kept us out of two more recessions in the meantime. Presumably, the next cohort's spending will be just as robust as well, although it still a little to early to tell just how strong. The form consumption takes might change (COVID is forcing people to more online shopping than normal, more online conferences, etc.) but consumption will still take place. America has a very robust ability to shift gears and keep up with consumer demand. There's a short lag time as companies realize the need to change and retool to meet the demand, but overall it's a winning strategy for the economy.

Seasonality works because it tends to revolve around annual financial cycles. The Santa Clause Rally due to end of year spending, quarterly earnings reports, fall harvest reports, etc. These cycles stay the same regardless what else is going on in the world. What goes on in the world might affect specific events up or down, but the events happen regardless, and over the long run paint a picture showing the economy still chugging onward. Buffet's valuation numbers are important, but like everything else they can change fairly rapidly (comparatively speaking, anyway) depending on market prices, and I think they are better used to try to help identify buy points. However, technical trading isn't my forte, which is why I rely on seasonality so much. Perhaps others can chime in on this particular point.

That said, the long term is what seasonality focuses on. If you like, you can think of the method as a small twist on Bogle's buy-and-hold method. Same goal and time horizon: long term returns as positive as possible. But each method has a different way of getting there.

Bogle: buy-and-hold, and hope that the next 20-30 years has the same 7-8% return as the previous 200 years, and that you get lucky and don't have a market crash within 5 years of retirement. Manage risk by statically diversifying by being invested across a wide range of investment options, but the penalty of doing so is through paying opportunity cost. Manage emotions by focusing on the long term. Adjust holdings slightly over time to be more conservative the closer one gets to retirement. The L Funds follow this strategy, albeit more a bit more conservatively than Bogle probably had in mind if I understand his writings correctly.

Seasonality: Establish an annual pattern of feast and famine, play the odds that you're comfortable with, and follow the pattern year after year. Monitor the pattern to see if multiple new years of returns are causing the pattern to change, and make small changes as prudent. Ignore the news that causes short term ups and downs in the market and focus on the long term. Manage emotions and expectations by focusing on the long term, and expect to be wrong and/or lose 30% of the time, but knowing that the math says that the 70% wins will overcome the losses in sufficient measure to win in the long run. Manage risk using dynamic diversification (avoiding the bad times of year instead of just sticking it out in hopes that any individual year isn't as bad as history says it tends to be).

It's not complicated, it's just a different way of thinking about investing.

[Aitrus]

Seasonal Strategy Results for August 2020

Note: A "good" month for the F Fund is CAGR 0.5% or better, and PNR 70% or better. A "good" month for C, S and I Funds is CAGR 1% or better, and PNR 70% or better. See 2nd post in the thread for description of CAGR. PNR is the ratio of Positive Months to Negative Months.

General Funds
G Fund: 0.05%, 0.71% Year to Date (YTD), PNR remains 100%
Aug Total CAGR = 0.39%
Aug 20 year CAGR = 0.29%
Aug 10 year CAGR = 0.18%
Aug 5 year CAGR = 0.19%
12-month PIP: 1.29%

The G Fund had a return this month that is the lowest in it’s history. At this point, it’s highly questionable whether the G Fund will even break 1% for the year. 2019’s Aug return was 0.18%.

F Fund: -0.81%, 6.79% YTD
Aug Total CAGR = 0.68%, PNR 70%
Aug 20 year CAGR = 0.85%, PNR 75%
Aug 10 year CAGR = 0.53%, PNR 60%
Aug 5 year CAGR = 0.65%, PNR 60%
12-month PIP: 6.37%

The F Fund had an absolutely horrible August this year. This is the fourth worst on record for the bond-tracking index. 2019’s return was 2.60%.

C Fund: 7.19%, 9.66% YTD
Aug Total CAGR = -0.45%, PNR 61%
Aug 20 year CAGR = 0.02%, PNR 65%
Aug 10 year CAGR = 0.04%, PNR 60%
Aug 5 year CAGR = 1.81%, PNR 80%
12-month PIP: 21.83%

August is normally pretty abysmal for the C Fund, but this year the C Fund set a new record. The next highest year was 2000’s 6.19% return. This year’s return was far outside the norm for the C Fund at this time on the calendar. 2019’s return was -1.59%.

S Fund: 7.20%, 6.69% YTD
Aug Total CAGR = 0.08%, PNR 61%
Aug 20 year CAGR = 0.09%, PNR 55%
Aug 10 year CAGR = -0.13%, PNR 50%
Aug 5 year CAGR = 1.52%, PNR 60%
12-month PIP: 17.36%

If 2020 was a good August for the C Fund, then it was equally so for the S Fund. This year’s return was the second best on record, behind 2000’s return of 11.16%. 2019’s return was -4.19%.

I Fund: 5.12%, -4.35% YTD
Aug Total CAGR = -1.39%, PNR 42%
Aug 20 year CAGR = -0.56%, PNR 40%
Aug 10 year CAGR = -1.39%, PNR 30%
Aug 5 year CAGR = 0.27%, PNR 40%
12-month PIP: 6.46%

The I Fund had a rare strong showing this year in August. The last time there was a return of over 1% to the upside was in 2012 with 3.29% (2016 was positive, but only by 0.08%). This year’s return is second best on record, with 1992’s return of 6.09% the only one higher. Despite this fantastic return, August is still solidly the worst month of the year for this Fund. 2019’s return was -1.77%

Currently Tracked Seasonal Strategies
Jahbulon's Basic Mix: F Fund in Aug (-0.81%), 2.34% YTD, PIP 10.07%
gclapper’s M3 Mix: F Fund in Aug (-0.81%), -6.49% YTD, PIP 0.58%
TSPCenter.com's Default Setting: F Fund in Aug (-0.81%), 7.02% YTD, PIP 12.99%
tmj100’s Mix: F Fund in Aug (-0.81%), -13.06% YTD, PIP -6.25%
Boltman's Mix: F Fund in Aug (-0.81%), 4.96% YTD, PIP 15.10%
Chindsey’s Mix #1: F Fund in Aug (-0.81%), -13.87% YTD, PIP -8.57%
Sell in May and Go Away: G Fund in Aug (0.05%), -9.15% YTD, PIP -0.78%
G all year, S in Dec Mix: G Fund in Aug (0.05%), 0.71% YTD

Everybody was in the F Fund, which means that everybody took a hit and fell far behind the C and S Funds. This August was certainly one that defied all expectations.

[Kal1981]

I appreciate you sharing your thoughts Aitrus. How often do you review the seasonal allocations strategies? For Jahbulon's mix, I understand January moved from the S fund to F fund. How do you determine a seasonality change vs. an odd year? Augusts are typically poor choices for C/S funds but it did quite well last month so how do we determine that August's seasonality hasn't changed for C/S and that F is still the best choice? Thanks in advance for sharing.

[Kal1981]

I'm happy to learn on my own about seasonality if you can point me in the right direction. I reviewed some of your recommended readings and it's how I found Bogle's book.

[Aitrus]

For additional reading on investing in general, I'd suggest the following:

If I could have everybody in the country read just one book on investing, it would be this one. Follow the reading assignments completely, and you're 90% of the way there. "If You Can: How Millennials Can Get Rich Slowly" by William Bernstein. The author offers the book for free on his website because he honestly doesn't need to sell the book because he and his business partner manage multi-million dollar investment accounts for a living. He wrote the book for his kids, grandkids, and all the other non-rich people who needed some basic advice if they were going to be able to retire comfortably. So he decided to offer it to everybody for free, and urges that it gets spread as widely as possible. It was originally located at http://efficientfrontier.com/ef/0adhoc/2books.htm The download link on the site isn't working anymore, so if you'd like a copy I can send you one, or you can get it from Amazon for $0.99 for the Kindle version.

- For an understanding of investing as it relates to the broader business cycle (especially as it relates to TSP), I'd recommend Paul's TSP Allocation site: https://www.tspallocation.com. He hasn't been around for over a year (new kid and other priorities), but his advice and understanding of the business cycle is top notch. Focus your reading on the "Getting Started" and "Timeless Posts" pages - that's where the majority of the gold nuggets can be found.

For seasonality in particular, I'd advise these:

- The Little Book of Stock Market Cycles by Jeffery Hirsch. Hirsch is the author of the Stock Trader's Almanac, an annual "farmer's almanac" style of books for seasonal investors. The Little Book is a distilled version to get one started in understanding seasonality. He has done a lot of writing on the subject of seasonality - more than pretty much anybody I know of. In second place would be Brooke Thackray.

- Equity Clock's Seasonality information section: http://www.equityclock.com/seasonality/ ... investing/
This one explains the concept of seasonality a little differently than I do, and it might help you see some aspects that I haven't covered. They also have seasonality charts (as in, a yearlong snapshot of average performance) for various indexes, sectors of the market (energy vs. technology vs medical, etc), and individual stocks. For example, here is the chart showing the seasonal strengths, weaknesses, and flatline periods for the S&P 500 for the last 20 years: https://charts.equityclock.com/sp-500-i ... onal-chart

- Jahbulon's stuff: http://web.archive.org/web/201312121212 ... om/cycles/
Jahby was one of the main seasonal gurus on this forum back in the day. When he left, seasonality pretty much slowed to a standstill until I (and later MJ) picked up the baton and carried it onward. Jahby had a couple of side projects, but they have since shut down as he moved on to other investment pursuits. The link I'm showing you was sort of a distilled version of what he discussed here on TSPCenter. If you want, dig through the Wayback Machine using the website "tspmarketwatch.com". You can also dig through the old threads here by searching through his posts. Look for stuff dated prior to 2014.

- Articles covering some of the more commonly known seasonal tendencies:
https://everythingfinanceblog.com/19025 ... sting.html
https://finance.zacks.com/seasonal-stoc ... -5830.html
https://www.stockbasket.com/blog/season ... -strategy/
http://www.timingthemarket.ca/techtalk/ ... investing/
https://tradingstrategyguides.com/seaso ... -strategy/
https://www.investopedia.com/terms/s/se ... o-away.asp
https://financialfreedomfederation.cabo ... investing/


- Here's a site that backtested a very basic seasonal Sell-in-May-style seasonal strategy using the S&P and a money market fund going back to 1950 (spoiler: the system beat buy-and-hold's average annual return by 1%): https://imarketsignals.com/2018/better- ... 1950-2018/

[Kal1981]

Aitrus, thanks for putting together this list to read! Much appreciated !!!

[Kal1981]

Another seasonality system. food for thought



In the December 2002 issue of Technical Analysis of Stocks & Commodities magazine, Jay Kaeppel presented a system of being in the market only when historical seasonality is positive. Mr. Kaeppel used four tendencies:
1. The two days immediately prior to an exchange holiday (New Year's Day, MLK Day, Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving and Christmas). NOTE: This has shifted somewhat over the years, and we have made the appropriate adjustments beginning in the 2008 calendars.
2. The last trading day of the month and the first four trading days of the next month.
3. November 1st through the 3rd trading day in May.
4. The most favorable 15 months of the 48-month Presidential election cycle. This begins on October 1st two years prior to each Presidential election, and ends on December 31st of the following year.
Each tendency gets a score of 1. When you have two or more tendencies working for you at the same time (i.e. a score of +2 or better), market performance over time is greatly enhanced.
Mr. Kaeppel tested this system on the Nasdaq from 1972 - 2002 and found that readings of +2 or greater outperformed non-seasonal days by a significant degree. He also found that readings of 0 underperformed all nonzero seasonal days by a likewise significant degree.
The chart to the right shows the Seasonality Index for the current year.


The tables below give the Seasonality Index for each trading day in the current year. The worst days are highlighted in red, while the best days are highlighted in green.
Date Seasonality Index Date Seasonality Index Date Seasonality Index
2020-01-02 2 2020-05-01 2 2020-09-01 1
2020-01-03 2 2020-05-04 2 2020-09-02 1
2020-01-06 2 2020-05-05 2 2020-09-03 2
2020-01-07 2 2020-05-06 1 2020-09-04 2
2020-01-08 1 2020-05-07 0 2020-09-08 0
2020-01-09 1 2020-05-08 0 2020-09-09 0
2020-01-10 1 2020-05-11 0 2020-09-10 0
2020-01-13 1 2020-05-12 0 2020-09-11 0
2020-01-14 1 2020-05-13 0 2020-09-14 0
2020-01-15 1 2020-05-14 0 2020-09-15 0
2020-01-16 2 2020-05-15 0 2020-09-16 0
2020-01-17 2 2020-05-18 0 2020-09-17 0
2020-01-21 1 2020-05-19 0 2020-09-18 0
2020-01-22 1 2020-05-20 0 2020-09-21 0
2020-01-23 1 2020-05-21 1 2020-09-22 0
2020-01-24 1 2020-05-22 1 2020-09-23 0
2020-01-27 1 2020-05-26 0 2020-09-24 0
2020-01-28 1 2020-05-27 0 2020-09-25 0
2020-01-29 1 2020-05-28 0 2020-09-28 0
2020-01-30 1 2020-05-29 1 2020-09-29 0
2020-01-31 2 2020-06-01 1 2020-09-30 1
2020-02-03 2 2020-06-02 1 2020-10-01 1
2020-02-04 2 2020-06-03 1 2020-10-02 1
2020-02-05 2 2020-06-04 1 2020-10-05 1
2020-02-06 2 2020-06-05 0 2020-10-06 1
2020-02-07 1 2020-06-08 0 2020-10-07 0
2020-02-10 1 2020-06-09 0 2020-10-08 0
2020-02-11 1 2020-06-10 0 2020-10-09 0
2020-02-12 1 2020-06-11 0 2020-10-12 0
2020-02-13 2 2020-06-12 0 2020-10-13 0
2020-02-14 2 2020-06-15 0 2020-10-14 0
2020-02-18 1 2020-06-16 0 2020-10-15 0
2020-02-19 1 2020-06-17 0 2020-10-16 0
2020-02-20 1 2020-06-18 0 2020-10-19 0
2020-02-21 1 2020-06-19 0 2020-10-20 0
2020-02-24 1 2020-06-22 0 2020-10-21 0
2020-02-25 1 2020-06-23 0 2020-10-22 0
2020-02-26 1 2020-06-24 0 2020-10-23 0
2020-02-27 1 2020-06-25 0 2020-10-26 0
2020-02-28 2 2020-06-26 0 2020-10-27 0
2020-03-02 2 2020-06-29 0 2020-10-28 0
2020-03-03 2 2020-06-30 1 2020-10-29 0
2020-03-04 2 2020-07-01 2 2020-10-30 1
2020-03-05 2 2020-07-02 2 2020-11-02 2
2020-03-06 1 2020-07-06 1 2020-11-03 2
2020-03-09 1 2020-07-07 1 2020-11-04 2
2020-03-10 1 2020-07-08 0 2020-11-05 2
2020-03-11 1 2020-07-09 0 2020-11-06 1
2020-03-12 1 2020-07-10 0 2020-11-09 1
2020-03-13 1 2020-07-13 0 2020-11-10 1
2020-03-16 1 2020-07-14 0 2020-11-11 1
2020-03-17 1 2020-07-15 0 2020-11-12 1
2020-03-18 1 2020-07-16 0 2020-11-13 1
2020-03-19 1 2020-07-17 0 2020-11-16 1
2020-03-20 1 2020-07-20 0 2020-11-17 1
2020-03-23 1 2020-07-21 0 2020-11-18 1
2020-03-24 1 2020-07-22 0 2020-11-19 1
2020-03-25 1 2020-07-23 0 2020-11-20 1
2020-03-26 1 2020-07-24 0 2020-11-23 1
2020-03-27 1 2020-07-27 0 2020-11-24 2
2020-03-30 1 2020-07-28 0 2020-11-25 2
2020-03-31 2 2020-07-29 0 2020-11-27 1
2020-04-01 2 2020-07-30 0 2020-11-30 2
2020-04-02 2 2020-07-31 1 2020-12-01 2
2020-04-03 2 2020-08-03 1 2020-12-02 2
2020-04-06 2 2020-08-04 1 2020-12-03 2
2020-04-07 1 2020-08-05 1 2020-12-04 2
2020-04-08 2 2020-08-06 1 2020-12-07 1
2020-04-09 2 2020-08-07 0 2020-12-08 1
2020-04-13 1 2020-08-10 0 2020-12-09 1
2020-04-14 1 2020-08-11 0 2020-12-10 1
2020-04-15 1 2020-08-12 0 2020-12-11 1
2020-04-16 1 2020-08-13 0 2020-12-14 1
2020-04-17 1 2020-08-14 0 2020-12-15 1
2020-04-20 1 2020-08-17 0 2020-12-16 1
2020-04-21 1 2020-08-18 0 2020-12-17 1
2020-04-22 1 2020-08-19 0 2020-12-18 1
2020-04-23 1 2020-08-20 0 2020-12-21 1
2020-04-24 1 2020-08-21 0 2020-12-22 1
2020-04-27 1 2020-08-24 0 2020-12-23 2
2020-04-28 1 2020-08-25 0 2020-12-24 2
2020-04-29 1 2020-08-26 0 2020-12-28 1
2020-04-30 2 2020-08-27 0 2020-12-29 1
2020-08-28 0 2020-12-30 2
2020-08-31 1 2020-12-31 3


The table below uses the S&P 500 from 1950 through mid-2004, and shows the market’s performance for days with each of the four possible total scores.

S&P 500 Performance by Seasonality Index
1950 - 2004
0 1 2 3 4
Avg Ret -0.03% 0.01% 0.08% 0.23% 0.21%
% Pos 50% 51% 56% 62% 70%
# Days 3604 5647 3555 860 33

We can see from the table that on a day when none of the four seasonal biases are present, the S&P actually showed a negative average return, and was positive on almost exactly 50% of the 3,604 days.

As we notched more biases in our favor, the S&P’s performance improved, slightly at first and then dramatically. By the time we had 3 out of the 4 biases present on a given day, the S&P showed an impressive average return of 0.23%, with 62% of the days being positive. Those rare “4” days, when all biases were present, also gave an impressive performance, with even more of the days being positive.

Let’s say that in 1950, you had $10,000 to trade and decided to buy the S&P 500 (cash index) at every open and sell it at every close, using all your money. Your $10,000 would have grown into just under $2 million by now. Now let’s say that when a “0” day arrived, you decided to stay in cash and not trade that day.

Interestingly enough, even though you were in the market only 74% of the time, your $10,000 would have still grown into just under $2 million. Now let’s make it really interesting…when you saw a “0” day, you still went to cash, but if it was a “3” or “4” day, then you decided to play the odds and you leveraged your bets 2-to-1. In that case, your $10,000 initial stake would have grown into more than $13 million, a return of over 133,000%.

Buy Every Open, Sell Every Close… Buy at Open and Sell at Close, IF Day is not a “0”… Buy at Open and Sell at Close, IF Day is not a “0”, and Double Down if it is a “3” or “4”…
$10,000 Becomes… $1,994,652 $1,997,418 $13,320,444
% Return 19,847% 19,874% 133,104%

By watching when the market may or may not have a positive bent to it, we can adjust our expectations accordingly. While it is difficult to implement this type of information in practice, we do suggest that especially shorter-term traders watch the Seasonality Index daily, and when we get a “3” or “4” day, it probably pays to be more aggressive than usual on the long side.

It would be foolhardy to suggest going short on “0” days, but we do think it is more difficult to make money on the long side on those days than others. Longer-term traders may want to keep track of what the upcoming month may hold as far as these scores go, and when they begin to add up, it can pay to be more aggressive on the long side.

[Aitrus]

That is some very cool information. Thank you for sharing it.

I wonder what the results would be if this system was plugged into tspcalc? Anybody care to take a whack at it?

[bloobs]

Another seasonality system. food for thought....

Interesting concepts; may be worthy of more research....hmmm

I guess for me to decide on its feasibility, these are my criteria:

1. Would this method, compared to my present methods in use, either increase my rate of return and/or lower my risk and;

2. Not be too cumbersome to manage that it would either take too much time for me or increase the likelihood of me making a mistake implementing it--resulting in disastrous financial ruin lol? Remember most of us still have regular jobs, as well as growing families, to attend to.

So what is the effective rate of return then for this method, annualized?

I saw that you mentioned you were invested in equities "only" 74% of the time. This struck me as too much risk. The daily seasonals I currently use require me to be in stocks only 58% of the time.

[Kal1981]

To clarify, I am not the author of the strategy. Another member in a different forum shared it with the group. I found it interesting and relevant to this group and thought I’d share it.

[Kal1981]

I’ll plug it in after work. But TSPcalc only goes back 15ish years. Is that enough of a time frame?

That is some very cool information. Thank you for sharing it.

I wonder what the results would be if this system was plugged into tspcalc? Anybody care to take a whack at it?