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Energy Good News and Bad News

I read a piece this morning where some analyst was calling for a rally in energy stocks.  It’s a guts call. And he may be right.  But for some reason, whether it is producing/consuming it or simply investing in it, it seems like nothing is ever easy when it comes to energy.

Energy versus Jay’s Anti U.S. Dollar Index

I follow an index I made up using ETFs that are inversely correlated to the US dollar.  Turns out it is not the worst energy stock barometer in the world.

The index is referred to as ANTIUS3 and is comprised of the following tickers:

FXE – Euro Currency Trust

FXF – Currency Shares Swiss Franc

IBND – SPDR Bloomberg Barclays International Corporate Bonds

IGOV – iShares International Treasury Bonds

UDN – PowerShares U.S. Dollar Index Bearish

Figure 1 displays my ANTIUS3 index in the bottom clip with a 5-week and 30-week moving average added and Fidelity Select Energy (FSENX) in the bottom clip.  Just a cursory glance reveals that ANTIUS3 typically (though far from always) serves as a leading indicator for energy stocks.  In other words, when the 5-week MA in the top clip is above the 30-week MA in the top clip FSENX (in the bottom clip) tends to rise and vice versa.1Figure 1 – Jay’s Anti U.S. Dollar Index versus ticker FSENX (Courtesy AIQ TradingExpert)

Figure 2 displays the growth of $1,000 invested in FSENX only when:

a) The ANTIUS3 5-week MA > 30wk MA

b) The ANTIUS3 5-week MA < 30wk MA

2Figure 2 – Growth of $1,000 invested in FSENX when system is “bullish” (blue) versus “bearish” (red); 3/1/2007-7/14/2017

As you can see in Figure 2 the ANITUS3 5wk/30wk “system” does not exactly qualify as “precision market timing.”  Still, consider the overall results:

*When the ANTIUS3 5wkMA > 30wkMA FSENX gained +187% (i.e. system is “bullish”)

*When the ANTIUS3 5wkMA < 30wkMA FSENX lost -66% (i.e. system is “bearish”)

That’s not terribly shabby for an admittedly very crude approach.

The most recent “signal” was a “Buy” on 4/28/17 but FSENX slid another 10% into June before “sorta, kinda” bouncing since then (See right hand side of Figure 2).

So where to from here?  Per usual, I have to go with my stock answer of “it beats me.” (Sorry folks, but predictions are not my strong suit).  Some thoughts:

*Energy stocks may well bounce higher in the near term, however, you have to be comfortable with (and preferably experienced at) being a countertrend trader in order to take a bullish position at this moment.

*From a seasonal standpoint this is typically not the ideal time to pile into energies.

During the month of August ticker FENX has generated a cumulative gain of +47% since it started trading in 1981.  However, as shown in Figure 3 – during September, October and November FSENX has lost a cumulative -42%.  At the same time, Figure 3 shows that FSENX “can” rally sharply during these months.  But the long-term odds are not favorable.3aFigure 3 – Growth of $1,000 invested in ticker FSENX ONLY during September, October and November; 6/1/1981-present

In sum:

*If you think that energy stocks are oversold and due for a bounce, you may be right and a trade on the long side might pay off (I suggest options on ticker XLE).

*If you are not so gung ho you might consider waiting to see what things look like closer to the end of November.

 Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Another Viewpoint on Year ‘7’

I have written on several occassions about the harrowing goings on in previous “Years ending in 7” (here and here).

Overall at the moment I am:

1) Still content to ride the bullish wave

2) Keeping a close eye on the exits

Today I read another interesting take on “Year 7” by Dana Lyons as reported on The McVerry Report.  If you would like to remain “well grounded” with all of the hoopla beginning to build regarding “new all-time highs” I strongly suggest you give it a read.

For the record I am not the type who is personally included to fight new all-time highs and in no way am I “calling for a top.”  As high as the market wants to run – A OK by me.  But I also try to keep in mind two old adages that I adapted (and adopted) as follows:

Jay’s Trading Maxim #135: You are far more likely to trip and fall if you moving forward while staring at the sky.  So always be aware of the terrain around you.

Jay’s Trading Maxim #136: If you trip and fall walking down the street that is one thing.  But if you trip and fall at the top of a mountain that is something different.  And if you don’t even realize you are at the top of a mountain when you trip and fell then, well, the only words that apply are ”Look Out Below.”

The bottom line:

*Don’t fight the trend.

*But never allow yourself to believe that the trend can’t end.

Jay Kaeppel

 Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Beans Beware Below

There are no “sure things” in the financial markets.  There are however, certain “high probability” things. Like for instance, a summer sell off in soybeans (and corn for that matter, but let’s keep it simple and look at beans).

The “typical” pattern for soybeans is that during the winter and early spring months – when there are no actual soybeans planted in the ground in the Midwest and therefore uncertainty is high regarding the current year’s crop – bean prices rise. Then after the expected state of the current year’s crop becomes known in late spring and into summer, bean price fall.

That didn’t happen this year.  Like I said, there are no “sure things”.

(See also A Focus on the Trends in Stocks, Bonds and Gold)

As you can see in Figure 1 November soybean futures went sideways from December into March and then declined steadily into June, before staging a massive rally in the past two weeks to end up where we would typically expect them to be by early July – i.e., at or near a high or the year.1Figure 1 – November Soybeans (Courtesy ProfitSource by HUBB)

Where to from here?  Historically the early July into early August period has been extremely rough for soybeans.

Specifically the seasonally unfavorable period extends from:

*The close on July Trading Day #9 (7/14/2017 this year)

*To the close on August Trading Day #6 (8/8/2017)

The History

Figure 2 displays the cumulative dollar gain/loss achieved by holding long one soybean futures contract from the close on July TDM #9 through August TDM#6 every year since 1978.  As you can see it is not a pretty picture.

2Figure 2 – Cumulative $ +/- holding long 1 soybean futures contract during unfavorable summer seasonal period (1978-2016)

Figure 3 shows the year-by-year gain/loss.3Figure 3 – Yearly $ +/- holding long 1 soybean futures contract during unfavorable summer seasonal period (1978-2016)

For the record:

*6 times (15% of the time) this period has showed a gain for beans

*33 times (85% of the time) this period has showed a loss for beans

As always, note that 15% is NOT 0% which means there is absolutely a chance that beans will advance in the month ahead after the close on 7/14.

But history seems to suggest that that is not the way to bet.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

A Seasonal Look at the U.S. Dollar

Seasonal trends can be found in many markets and stocks – the U.S. Dollar is no exception.  For our purposes today we will keep it very simple and look at which months have typically been “good, bad or indifferent” for USD.

The Test

For testing purposes we will use ticker DXY from ProfitSource by HUBB as shown in Figure 11

Figure 1 – Ticker DXY (U.S. Dollar 1977-2017) Courtesy ProfitSource by HUBB

In Figure 2 we find the following:

*3 Best Months = January, May and November

*3 Worst Months = April, September and December

*“Other” Months = February, March, June, July, August and October

2Figure 2 – Cumulative DXY % Gain Month-by-Month (1977-present)

Figure 3 displays the growth of $1,000 invested in ticker DXY during each of the three periods listed above.3
Figure 3 – Growth of $1,000 invested in DXY Good Months (blue), Bad Months (red) and Other Months (green); 1977-present

From Theory to Practice

Traders looking to actually use this information should:

*Determine whether or not they believe there is enough here to really go on.

*Focus on US dollar and inverse US dollar funds and/or ETFs including RYSDX, RYWDX, RDPIX, FDPIX and UUP and UDN.

RYSDX and RYWDX are open-end mutual funds that trade the dollar long (or short) using leverage of 2-to-1.  RDPIX and FDPIX do the same without using leverage and UUP and UDN are ETFs that trade the dollar long and short with no leverage.

Figure 4 displays the growth of $1,000 using monthly total return data for tickers RYSDX and RYWDX since they starts trading in May 2005, using the following method:

*Long RYSDX (i.e., long the U.S. Dollar) during Jan, May and Nov

*Long RYWDX (i.e., short the U.S. Dollar) during Apr, Sep and Dec

*In Cash (earning 1% annually) during all other months

4Figure 4 – Growth of $1,000 trading “Good” and “Bad” Months using tickers RYSDX and RYWDX (blue) versus buying-and-holding RYSDX (red); 2005-present

The bottom line:

*$1,000 invested as described grew to $2,656 (+166%)

*$1,000 invested in RYSDX using buy-and-hold declined to $883 (-12%)

*The average annual % gain using our trading model was +10.4%

*The average annual % loss holding RYSDX was (-0.1%)

*The trading method showed a 12-month gain 84% of the time

*Buying and holding RYSDX showed a 12-month gain 43% of the time

Summary

Is this actually a tradable model?  That’s not for me to say.  I am just putting the idea out there.  Still, given the consistent outperformance versus simply buying and holding the U.S. Dollar, it might at least be a good place to start looking.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

A Focus on the Trends in Stocks, Bonds and Gold

In the end it is not so much about “predicting” what will happen next in the financial markets, but rather recognizing – and being prepared for – the potential risks, that makes the most difference in the long run.  So let’s start by looking at current trends.

Stocks

Let’s start with a most simple trend-following model that works like this:

-A sell signal occurs when the S&P 500 Index (SPX) registers two consecutive monthly closes below its 21-month moving average

-After a sell signal, a buy signal occurs when SPX register a single monthly close above its 10-month moving average.

Figure 1 displays recent activity.1Figure 1 – SPX Trend-Following signals (Courtesy AIQ TradingExpert)

The good news is that this model does a good job of being out of stocks during long bear markets (1973-74, 2000-2002, 2008-2009).  The bad news is that – like any trend-following model – it gets “whipsawed” from time to time.  In fact the two most recent signals resulted in missing out on the October 2015 and March 2016 rallies.

But note the use of the phrase “simple trend-following model” and the lack of phrases such as “precision market timing” and “you can’t lose trading the stock market”, etc.

For now the trend is up.  A few things to keep an eye on appear in Figures 2 and 3.  Figure 2 displays four major averages.  Keep an eye to see if these averages break out to the upside (see here) or if they move sideways to lower.2Figure 2 – Four Major Market Averages (Courtesy AIQ TradingExpert)

In addition, I suggest following the 4 tickers in Figure 3 for potential “early warnings” – i.e., if the major averages hit new highs that are not confirmed by the majority of the tickers in Figure 3.3Figure 3 – Four potential “Early Warning” tickers  (Courtesy AIQ TradingExpert)

Bonds

My main “simple bond trend-following model” remains bearish.  As you can see in Figure 4, a buy signal for bonds occurs when the 5-week moving average for ticker EWJ (Japanese stocks) drops below its 30-week moving average and vice versa.4Figure 4 – Ticker EWJ 5-week and 30-week moving average versus ticker TLT (Courtesy AIQ TradingExpert)

A 2nd model using metals to trade bonds has been bullish of late but is close to dropping back into bearish territory.  Figure 5 displays the P/L from holding a long position of 1 t-bond futures contract ONLY when both the EWJ AND Metals models are bearish (red line) versus when EITHER model is bullish (blue line)5Figure 5 – T-bond futures $ gain/loss when EWJ OR Metals Models are Bullish (blue line) versus when EWJ AND Metals Models are both Bearish (red line); August 1990-present

Gold

My most basic gold trend-following model is still bearish.  This model uses my “Anti-Gold Index” (comprised of tickers GLL, SPX, UUP and YCS).  It is bullish for gold when a Front-Weighted Moving Average (detailed here) is below the 55-week exponential moving average and vice versa.6Figure 6 – Jay’s “Anti-Gold Index” versus ticker GLD (Courtesy AIQ TradingExpert)

Summary

So at the moment the stock model is bullish and the bond and gold models are bearish.  Are these trends certain to persist ad infinitum into the future?  Definitely not.  Will the models detailed here provide timely signals regarding when to get in or out the next time around?  Sorry, but it doesn’t always work that way with trend-following.

But as for me I prefer “riding the trend” to “predicting the future.”

Some painful lessons just stick with you I guess.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

The Summer Rally (versus the Rest of Summer)

It is not a little known phenomenon that the stock market has demonstrated a seasonal tendency to rally during a specific time of the summer.  It is also not entirely unrecognized that the summer months are often a “snooze fest” for the stock market overall.  The catch of course is that results can vary widely from year-to-year.

Still, in looking for an “edge” wherever we can find one, it probably doesn’t hurt to know the difference between the “Summer Rally Period” and “The Rest of Summer.”

(See also The Post-Election/Year ‘7’ Bermuda Triangle)

The Summer Rally Period (SRP)

The SRP begins at the close on the fourth to last trading day of June and extends through the close on July trading day #9.  For 2017, that means buying at the close on 6/27/2017 and selling at the close on 7/14/17.

Is this really a good idea?  I’ll show you the numbers and you can make up your own mind (you know the old “We report, you decide” model, versus today’s more common journalistic model of “We decide and then we report our decision to you”). We will use the Dow Jones Industrials Average daily price data going back to 1934 for our test.

Here is the primary takeaway:

*$1,000 invested in the Dow ONLY during the 12-day SRP grew to $7,705

*$1,000 invested in the DOW ONLY during ALL OTHER trading days during the months of June, July and August declined to $962

To put it another way, during the SRP the Dow gained +671%, and during all other summer trading days lost -4%.  The difference between +671% and -4% is what we “quantitative types” refer to as “statistically significant”.

More numbers:

Measure Summer Rally Rest of Summer
Average %+(-) 2.7 0.2
Median % +(-) 2.9 0.2
Maximum Gain 21.1 22.7
Maximum Loss (12.6) (18.1)
# times UP 62 44
# time DOWN 21 39
% times UP 74.7 53.0
% time DOWN 25.3 47.0

Figure 1 – Summary Results

As you can see in Figure 1, the SRP has showed a gain roughly 3 out of 4 years, versus much closer to 50/50 for all other summer trading days.

Figure 2 displays the annual results for the Summer Rally Period and Figure 2 displays the annual result for all other trading days of summer.2Figure 2 – Summer Rally Period Yearly% +(-); 1934-20163Figure 3 – All Other Summer Trading Days (June/July/August) Yearly% +(-); 1934-2016

Figure 4 displays the growth of $1,000 invested in the Dow during the Summer Rally Period versus all other trading days of summer.4Figure 4 – Growth of $1,000 invested in Dow during Summer Rally  trading days ONLY (blue) versus all other trading  days for June/July/August; 1934-2016

(See also Four Things to Watch for Warning Signs)

Summary

So will the SRP in 2017 be one of 75% up years or one of the 25% down years?  Ah, there’s the rub.  There is no way to predict for sure. 75% represents good odds – but it  is no “sure thing”.  Still, the long-term results clearly seem to favor this narrow 12 day period, particularly vis a vis all other trading days of June, July and August.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Do You Think Apple Will Bounce?

Actually it is a two part question:

Question 1) Do you Apple (ticker AAPL) will bounce back to higher ground?

Question 2) Do you have 260 bucks?

AAPL has been a high flier for some time.  But as you can see in Figure 1, it recently hit a “bump in the road”.1Figure 1 – AAPL stumbles – A top or just a temporary setback? (Courtesy AIQ TradingExpert)

(See also Even More Summer Fun with Biotech and Real Estate)

What follows is not a “recommendation” but merely an example of “one way to play” for a trader who thinks that AAPL stock may bounce back to or above its old highs – but who doesn’t want to or cannot pony up the requisite $14,568 needed to purchase a “small” position of 100 shares.

The Out–of-the-Money Call Calendar

There are many potential variations of what I am about to show.  This should NOT be considered to be the “one best and only way.”  But hey, it’s one way.

Hypothetical Position:

*Buy 4 AAPL Sep15 160 calls @ $1.28

*Sell 4 AAPL Aug18 160 calls @ $0.70

If entered at this price, the total cost before commissions is $260. This also represents the maximum risk if AAPL fails to advance.

The particulars are displayed in Figure 2 and the “big picture” risk curves in Figure 3

2Figure 2 – AAPL Out-of-the-money calendar spread (Courtesy www.OptionsAnalysis.com)

3Figure 3 – Risk Curves for AAPL Out-of-the-money calendar spread (Courtesy www.OptionsAnalysis.com)

Now let’s “zoom in” a bit on “where this trade lives” (a phrase I first learned from Mitch Genser, a mentor of mine when I joined Optionetics a number of years ago).

What we are really looking for is for AAPL to (hopefully) bounce back up to its old high near $156 a share.  As you can see in Figure 4, if AAPL does get backup to this price prior to August option expiration on 8/18, the profit on this position will be somewhere between $160 and $630, depending on how soon that price is hit.  If AAPL rallies immediately the profit will be lower, if it takes its time the profit will be higher.  In this position, time decay works in the traders favor at any price above roughly $150 a share.4a

Figure 4 – Zooming in on the AAPL OTM Calendar (Courtesy www.OptionsAnalysis.com)

As with any trade a plan is essential for success.  So here is a hypothetical plan fitting a hypothetical trade:

  1. If AAPL breaks down we will simply hold on and risk the entire $260.
  2. If AAPL rallies to $156 we will either close the position and take our profit OR look to adjust the open position to lock in a profit and let the rest ride.

(See also The Sordid Past of Years Ending in ‘7’)

Summary

I have no opinion as to whether or not AAPL will rally between now and August 18.  But that’s not really the point of this example.  The point is this:

For a trader who thinks that a stock that has been in a strong uptrend before a short, sharp decline will bounce back, this example highlights one way to play without risking large amounts of capital

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Even More Summer Fun with Biotech and Real Estate

In this article I highlighted the potential benefit of focusing on biotech and real estate during a particular favorable seasonal period during June and July.  Today we are going to extend the “summer fun” out a little longer.

(Be sure to see Three Timely Articles Worth Reading)

(See also Summer Leisure = Fun (and Dead Money))

The Extended Summer Fun Strategy

The rules are pretty simple:

*Hold biotech (FBIOX) and real estate (FRESX) – split 50/50 – from the close on June trading day number 17 through the close on July trading day #21

*Also hold biotech only (100%) from the close on August trading day #7 through the close on September trading day #9.

The results of this “strategy” (If one can call it that) appear in Figure 1.1Figure 1 – Growth of $1,000 invested in FBIOX and FRESX using Jay’s “Extended Summer Fun” Strategy

For the record:

Measure Result
# Years UP 24 (86%)
# Years DOWN 4 (14%)
Average All Years +8.3%
Average UP Year +10.1%
Average DOWN Year (-2.5%)
Best UP Year +22.7% (1999)
Worst DOWN Year (-7.7%) (2002)

Figure 2 – Summary Results

Year-by-Year Results Appear in Figure 3.

Year % +(-)
1989 12.4
1990 7.9
1991 15.2
1992 7.4
1993 6.3
1994 7.4
1995 8.1
1996 0.4
1997 13.5
1998 (0.8)
1999 22.7
2000 7.6
2001 (0.5)
2002 (7.7)
2003 18.1
2004 9.9
2005 12.3
2006 7.8
2007 2.4
2008 0.3
2009 21.0
2010 1.8
2011 10.5
2012 13.5
2013 19.5
2014 9.9
2015 (1.2)
2016 7.6

Figure 3 – Year-by-Year Results

(See also A Really (Really) Long-Term Perspective on Interest Rates)

Summary

So is this “Summer Fun Strategy” really a strategy?  That’s not for me to say.  As always, the stuff I write about here is presented as “information” and not as a “recommendation”.

The competing factors are:

*The long-term results have been pretty consistently good (86% winners)

*However, there is never any guarantee “this time around” AND biotech and real estate can be extremely volatile sectors.

So DO  NOT think of this as a “low risk” strategy.

Still, given that the overall stock market often does little during the summer months, we investors have to look for “fun” wherever we can find it.

Jay Kaeppel

 Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Summer Fun with Biotech and Real Estate

Studies suggest that buying an upside breakout can be a good strategy.  It sure can be scary though.  There is always that underlying fear of looking like “the last fool in” if the security in question experiences only a false breakout and then reverses back to the downside (and I hate it when that happens).  Still, for a stock to go from $50 to $100 it first has to go to $50.01, then $50.02, etc.

(See also Live by the FAANG, Die by the FAANG)

Buying into an impending breakout can be an even dicier proposition since this involves buying into what is essentially a “topping formation.”  I recently wrote about consolidation patterns in biotech and real estate.  These sectors appear to be getting closer to a resolution.  Consider tickers XBI (biotech ETF) and IYR (real estate ETF) as shown in Figure 1.

1Figure 1 – Biotech and Real Estate (Courtesy AIQ TradingExpert)

XBI appears to be breaking out to the upside – at least for now.  IYR is close to breaking out – however, one could look at it in an exactly opposite manner and claim that it is “running into resistance near the old highs and therefore may be forming a top.”

Ah, the eye of the beholder.

A Seasonal Play in Biotech and Real Estate

It is pretty widely known at this point that the summer months tend not to be very favorable for the stock market overall (although July of this year might be an exception to the rule).  But biotech and real estate often provide a summer trading opportunity.

The seasonally favorable period extends from:

*The close on June trading day #17 (6/23/2017 this year)

*Through the close on July trading day #21 (7/31/2017 this year)

Figure 2 displays the growth of $1,000 split evenly between ticker FBIOX (Fidelity Select Biotech) and ticker FRESX (Fidleity Select Real Estate) every since 1989 during this period.

2Figure 2 – Growth of $1,000 split between FBIOX and FRESX during seasonally favorable summer period (1989-2016)

Figure 3 displays a summary of the results since 1989.

Measure Result
# Years UP 22 (79%)
# Years DOWN 6 (21%)
Average All Years +3.3%
Average UP Year +5.0%
Average DOWN Year (-2.9%)
Best UP Year +14.9% (2009)
Worst DOWN Year (-4.3%) (2004)

Figure 3 – Summary Results

(See also One Good Reason NOT to Pick a Bottom in DIS)

One thing to  note is the lack of downside volatility despite the fact that both biotech and real estate can be quite volatile (worst down period was -4.3% in 2004).

Year-by-Year Results Appear in Figure 4.  For comparisons sake the annual performance for the Dow Jones Industrials Average (DJIA) during the same period is included.

Year FBIOX/FRESX DJIA Diff
1989 4.8 5.1 (0.3)
1990 2.8 2.1 0.7
1991 5.8 3.6 2.2
1992 7.0 3.2 3.7
1993 0.8 2.1 (1.3)
1994 (0.6) 1.8 (2.4)
1995 3.5 2.7 0.8
1996 (4.1) (4.1) 0.1
1997 2.9 6.4 (3.5)
1998 1.8 2.2 (0.5)
1999 4.4 (0.1) 4.5
2000 0.3 1.1 (0.8)
2001 (3.6) 0.1 (3.8)
2002 (1.5) (4.9) 3.4
2003 8.0 1.0 7.0
2004 (4.3) (2.9) (1.4)
2005 9.6 2.1 7.5
2006 4.0 1.8 2.2
2007 (3.2) (1.0) (2.1)
2008 6.7 (1.9) 8.6
2009 14.9 10.0 4.9
2010 2.0 1.6 0.4
2011 3.0 0.8 2.2
2012 5.7 4.0 1.7
2013 12.6 5.2 7.5
2014 1.1 0.4 0.7
2015 0.6 (2.2) 2.8
2016 8.6 2.3 6.2

Figure 4 – Annual Results for FBBIOX/FRESX during seasonally favorable  summer period versus Dow Jones Industrials Average

For the record,during the seasonally favorable summer period:

*The FBIOX/FRESX combo has outperformed the Dow in 19 out of 28 years.

*$1,000 invested in FBIOX/FRESX grew to $2,440

*$1,000 invested in the Dow Industrials grew to $1,505

Summary

So is biotech and real estate the place to be in the month ahead?  Well, that’s “the thing” about seasonal trends – there’s no way to know for sure what it’s going to be “this time around.”

On a cautionary note, it should be pointed out that the FBIOX/FRESX combo has registered a gain during the seasonal summer period – and outperformed the Dow – in each of the last 9 nine years.

So is it “Away We Go” or this the year that “Murphy’s Law” exacts its revenge?  As always, time will tell.

Jay Kaeppel

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