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As you can see, this pattern was correct well over 90 percent of the time during period shown. Naturally, a good statistician would argue that there were not enough trades in the sample to constitute a valid test of the pattern. If you look back prior to 1982, when S&P futures began trading, you'll find a similar pattern in the cash S&P 500, albeit with a lower but still significant percentage accuracy to the listing here shows. Seasonals are not perfect and some do indeed deteriorate over time, but in the main they are reliable and valid methods for trading.

Although literally hundreds of seasonal patterns exist in the major stock indices—some short-term, some longer-term—these patterns can be used successfully by traders who are aware of them and who, moreover, have the discipline to use them consistently.

As a further example, consider the seasonal patterns in the crude oil market shown in Figure 12.2.

It shows the seasonal pattern in fuel oil dating back to the 1930s. The line plot shows a strong tendency for prices to rise from August until late in the year. The up arrows show a high probability of an upward move for the month. The down arrows show a high probability of a downward move for the month. The bottom row shows the percentage of times the monthly average prices for the given month have been higher or lower for the period studied.

Based on the chart in Figure 12.2, you would expect to find a similar pattern in crude oil futures and, most likely, in petroleum stocks as well. Figure 12.3 shows the same pattern on a weekly basis in November crude oil futures. You can see the tendency for higher prices from late February through late August.

Based on the patterns illustrated in these studies, the odds are that a similar pattern would be found in petroleum company shares. Figure 12.4 shows the monthly prices of a major petroleum stock reflecting this seasonal pattern. Using this approach, trades could be made in SSFs or NBIs.

Seasonal Tendency in Cash Fuel Oil, 1938-1997

MONTHLY SEASONAL CASH ARRAY ANALYSIS: FUELOIL YEARS: 1938 - 1997

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