A Seasonal Strategy for SSFs Seasonality is one of the most important underlying forces in the stock and futures markets. Although many traders, market analysts, and economists dispute the value—and even the existence—of sea sonal forces in the markets, seasonal forces, or seasonals, do exist and do indeed account for certain trends within the course of the calendar year. Art Merrill, for example, in his classic book The Behavior of Prices on Wall Street (Analysis Press, 1980) demonstrated the existence of preholiday behavior in the Dow Jones Industrial Average, conclud ing there was a high probability of higher closing prices in the Dow on the day before major U.S. holidays. His study demonstrated sta tistically that the odds of a chance occurrence in his findings were about 1 in 10,000! My work in the futures markets also verifies the existence of sea sonal patterns, which are often reflected in individual stocks as well as in the major stock indices. As an example of such seasonal patterns, consider the tendency of the S&P 500 average to move higher from approximately January 12 through 18, a pattern that has been in existence for many years. sition on the close of trading January 18 every year. For cases in which the market was closed on the ideal entry date, the trade would be executed on the close of business the next day; the trade carries a 3 percent closing basis stop loss. In fact, close examination of S&P futures from 1982 through 2001 (and well before 1982 in the cash S&P index) indicates a high probability of upward movement during this time frame. Figure 12.1 shows a historical summary that illustrates my point about seasonality in the S&P 500 index. This summary shows hypothetical trading in S&P futures—buying on the close of trading January 12 every year from 1983 through 2001 and exiting the po- I FIGURE 12.1 Key Date Seasonal Trade in S&P 500 Futures MAR S&P 500 LONG Enter: 1/12 Exit: 1/18 Stop: 3 P/L Ratio: 1761.50 Trade #: 2197
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