Market Tendencies

by Evan on October 6, 2009

While I do not advocate short term trading or timing of the market for profit, there is some merit to understanding the stock market’s ups and downs. There have, historically, been times of the year that behave more rationally than others. The point of this discussion is to allow for individuals who are rebalancing, dollar-cost-averaging, or buying into a large long term position, the ability to understand patterns.

January – March The first quarter of the year. This is usually a good time for equities and companies are looking to make sure their balance sheets are boosted for 1st quarter earnings. A good majority of stock market gains are made in this quarter and the 4th quarter.

April – May Transition period. Flip a coin and hope for the best! The old adage of “sell in May and stay away” means that it used to be common practice for traders to liquidate positions going into May for the summer months.

June – September The “summer doldrums”. Most purchases and sales during this time are related to specific events and economic news. The markets tend to be choppy, low volume, and have very little direction. Nothing changes until after the summer season is over and institutions begin to start purchasing/selling securities again.

October – December Where much of the action takes place! Most of the large movements up or down in the markets occur during this time and during the first few months of the 1st quarter. October tends to be a large sell-off month if the market is going to correct for a large upswing earlier in the year. November and December tend to be much more to the upside due to the “Santa Claus” rally. People act more positively around the holidays and it ends up showing up in the stock market, too.

Market timing is a zero sum game for long term investors, but knowing when to act prudently through out the year gives each and every investor more power to understanding the markets.

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