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Trading
June is usually a bearish month and July is bullish
Jeff Cartridge - June 19, 2008
 I am not sadistic or masochistic, but the fall in the markets over the last week has got to hurt. But not everyone suffered pain during this drop. The magnitude of the fall was a surprise, but the timing and direction of the move was not at all surprising.
The Australian market, like many other markets around the world, exhibits a repetitive seasonal pattern. There are different times of the year, which present different trading opportunities. By analysing the seasonal patterns in the Australian market using data from the XAO over 26 years the following chart can be created.
It can be seen from this chart that strong bullish periods in the market occur in April, July, and December, while strong bearish patterns occur in Jun and Oct.
So how do we get positioned to take advantage of a drop in June. From the analysis shown below the optimum entry is the close on the 5th June * and the optimum exit is the close on the 16th July. Trading this strategy provides a win% of 77% meaning that approximately two of every ten trades fails. The average return over ten days is -1.15%, with a best return of -6.32% and a worst result of +2.02%. Note the negative numbers show that the market drops during this time, not that the trade makes a negative return. Further analysis found that a stop loss of approximately 2% limits the loss encountered without having a significant effect on the win %.
* Entering on the open on the 6th June is unlikely to significantly affect the results.
Using CFDs allow a trader to profit from market falls when they occur. There was a 77% chance that the market would be lower in June and the drop this year was not a surprise. The size of the fall however was larger than expected for this end of financial year drop. So despite the falls it could have been a profitable trading opportunity. For those that missed this trading opportunity July is just around the corner and historically offers strong performance on the long side.
Jeff Cartridge is the author of Supercharge Your Trading with CFDs. For more information go to www.superchargedreturns.com.au. Please note that the views expressed here are those of the author, not of CompareShares. Although all investing has some form of risk, CFD trading strategies are only for experienced traders and risk management strategies must be considered.
Whatever your views, you can discuss this article - or any of Jeff's articles - on our message board Your 2 Cents.
More articles from this edition of CompareShares:
Property: Where is the property market headed?
China stocks: Yes, you can buy stocks in China
Stocks: Stock of the week – Energy Resources of Australia
Trading: June is usually a bearish month and July is bullish
Economy: Britain 'will beat off' recession threat
Acquisition: ACCC begins action against ABC Learning
Commodities: Imports surge but demand for oil wanes
Commodities: Rhodes Ridge crucial for production: Rio
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