Is it actually possible to make profitable trades by taking advantage of seasonal patterns in individual stocks?
The answer is YES, NO, May be
While this may be one of the more amusing research works we have done in a while, the results do tell a story.
DISCLAIMER: I do not buy, nor encourage buying stocks based on seasonal patterns.
Seasonal stock investing is about understanding recurring patterns in stock prices to assess when to buy / sell a particular stock. Seasonality is based on the concept that “History repeats itself; investing based on this principle could possibly (but not always) give you repetitive results.
Seasonality is not only about natural seasons like summer, winter, spring and rains. Stock prices also get affected by certain non-natural seasons for example corporate earnings, holiday season, election, budget etc.
|Summers||Voltas, Hitachi, Whirlpool, Vadilal, Bluestar|
|Rainy||Chambal, Deepak, RCF, Tata Chemicals|
|Winter||Tata Tea, Tata Coffee, Mcloed Russel|
|Budget||Railways, Education, Agro Based Stocks|
Seasonal Stocks – Where product sales are impacted by seasonality.
Summer Stocks – As the temperature begins to rise, investors buy stocks of companies associated with air conditioners, cooling systems, consumer durables and tours & travel that normally see an uptrend between March and June. Look at the price change below (this is despite a relatively weak performance of stocks in the overall market during the same period).
|Stocks||CMP||Dec 2016||May 2017||Change % (in 5 months)|
|CG Power and Industrial Solutions||78.25||55.60||77.50||39%|
Shows that Seasonal Patterns in Individual Stocks are not Random Phenomena
|Vadilal Industries: Jan to March price change|
Winter Stocks – During winters, demand for tea and coffee increases.
|Company Name||Last Price||May 2016||Oct 2016||Change % (in 5 months)|
|Tata Global Bev||156.80||115.90||154||33%|
Rain Stocks – Good monsoon prediction by the MET department tends to increase interest in FMCG goods, two-wheelers and tractors, agrochemicals, fertilizers, seeds company and hydro-power generators.
|Stocks||CMP||1 Year Return|
Last five months of the year, consumption-driven companies gain investors interest. Festive season is one of the pick periods for automobile, jewelry and consumer durable goods sale.
|Company||CMP||Aug-16||Nov-16||Aug – Nov 2016|
Railway Stocks Around Budget
Railway stocks are generally in limelight only around the Railway Budget and post that nobody talks about them for a year.
In the past many years, it is noticed that these railway stocks start gaining investor’s interest six to eight weeks ahead of the budget. But soon after the budget, they tend to start slipping, most often, shedding all the gains made in the rally.
|STOCKS||Price on Dec 2016||Price on Jan 2017||Change % (pre- budget)||Price on Feb 2017||Change % (post- budget)|