A Seasonal Play in Financial Stocks

  • SumoMe

As I wrote about here,  here, here and yes, here (and, um, also here), the holiday season tends to be a good time to invest in the stock market in general and in specific sectors in particular (with that pesky fly in the ointment, monkey in the wrench, pain in the rear caveat that “there are no guarantees this time around”).  So let’s add one more to the mix.

 (Jay Kaeppel Interview at BetterSystemTrader.com)

 Favorable Seasonal Period for Financial Stocks

*A favorable seasonal period for the financial stock sector tends to start at the close of the 11th trading day of December (12/15/15 this year)

*The favorable period extends through December 31st of the current year

We will use Fidelity Select Finance (ticker FIDSX) as a proxy for testing results.  However, it should be noted that due to switching restrictions, FIDSX cannot actually be used to trade the method I am about to discuss.  Fortunately other funds and ETFs are available and are listed a little later.  But for now, Figure 1 displays that growth of $1,000 invested in FIDSX only during this mid-to-late December period described above since 1988.

1Figure 1 – Growth of $1,000 invested in FIDSX during Seasonally Favorable Period (1988-2015)

Figure 2 displays the year-by-year results for both FIDSX (which has switching restrictions that would likely result in a 2.5% deduction if you actually used FIDSX to trade this method) and ticker FNPIX (ProFunds Financial).  FNPIX started trading in 2000, has no switching restrictions and uses leverage of 1.5-to-1.

2

Figure 2 – FIDSX and FNPIX %+(-) during Seasonally Favorable Period (1988-2015)

For the record, during this period FIDSX has:

*Gained 24 times (89%)

*Lost 3 time (11%)

*Average % gain = +3.49%

*Average % loss = (-1.03%)

Since 2000 Ticker FNPIX has:

*Gained 13 times (87%)

*Lost 2 times (13%)

*Average % Gain = +4.77%

*Average % Loss = (-3.16%)

A Few Alternatives

Since FIDSX is not a viable trading alternative a trader might also consider

*ProFunds Finance fund (FNPIX)

*Rydex Real Estate fund (RYFIX)

*SPDR Financial Sector ETF (XLF)

Summary

As always I need to point out two things:

1) This is not a “recommendation”.  It is simply a presentation of information regarding a pattern that has held up reasonably well in the past (in this case “reasonably well” is defined as “89% winning trades and a 3.4-to-1 profit/loss ratio”).

2) There is never the slightest hint of a guarantee that any seasonal trend will play out “this time around” as well as it has in the past.

Still, as whoever said it first said it, Hey, 89% is 89%”

Jay Kaeppel

3 thoughts on “A Seasonal Play in Financial Stocks

    1. I have to avoid making recommendations. That being said, using the “buy the well in-the-money and sell enough premium to cover the time premium paid on the option bought” approach that would have meant buying the Jan 23 call (@1.22) and selling the Jan 25 call (@0.15) at the close on 12/15. As I write that trade is now at about a 25% loss. The market looks pretty ugly at the moment but if I were going to take the plunge now in hopes that things will rebound by 12/31 I would buy the Jan 23 (presently @ 0.90) and sell the Jan 24 (presently @ 0.31). Again, that’s not a recommendation, just the closest ITM/OTM play. Jay

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