Seasonal Trends For Stock Picking

According to Stock Trader's Almanac, November has been a good time to be a bull. Since 1971, in terms of historical performance, it has been the best month for the S&P, the third best for the Dow, and the second best for the Nasdaq. November also starts the best six months of the year.

For example, if you bought owned shares in the Dow between May 1st and October 31st, your net gain between 1950 to 2005 was just +0.3% However, if you bought the Dow between November 1st and April 30, your net gain was +7.9% instead. Indeed, a significant difference.

But, not all sectors and individual stocks follow these historical trends and, even if they typically do, seasonal trends do not always provide you with a trustworthy indicator. In sum, seasonal trends are important to know and may help encourage you to buy and sell during specific times of the year, but you should avoid making generalizations based on seasonal trends alone.

One way determine if historical trends are in or against you in individual stocks is to simply look up the historical monthly stock performance. There are several websites that offer this and you can find out the data on your own with a little bit of work, but my favorite tool is offered by Thomson Financial though AOL's website. (Just type in your ticker symbol in the quote form, click on the performance link, and then pull up the average monthly returns to locate seasonal trends.)

For an example of a stock where positive historical trends can be seen, just take a look at shares of Xm Satellite Radio (XMSR). Investors in that stock would have been well-served by just owning the stock in the last two months of the year versus most of the other months. Why do you think that is?

Sometimes you'll find strong performance trends but other times you don't. My suggestion is that if you're counting on seasonal trends to be with you in the trades and investments you make, you may want to first check the historical performance to make sure those trends actually confirm your expectations. And, even if they do, be sure you have other reasons for owning the stock beyond it. (XMSR will report earnings before the open tomorrow).

Like my favorite uncle used to say - it may snow in December, but don't count on a white Christmas!