Much like nature, the stock market likes to repeat seasonal trends.

These trends mean that individual stocks will repeat the price movements they had in previous years.

If an individual stock has traditionally had a strong January for the past 10 years, can you guess what it’s going to do this upcoming January?

It’s probably going to have another strong month!

The key for you, as a trader, is to find these stocks BEFORE they make their seasonal move.

Here’s more what seasonal stocks are, why they matter, and how you can use them to gain your edge in the market.

What Are Seasonal Stocks?

Businesses operate year-round, but often times their sales come during seasons.

Apartment companies sign most of their new leases in the summer, when people are looking to move into new places.

Retailers get a boost in sales during the holiday season, when almost everyone is shopping.

Airlines fly the most people during the spring and summer, when most people are taking vacations.

Now, think about a stock. A stock that is representative of a seasonal industry might boom during certain times of the year, but could be relatively inactive during the “off seasons.”  

This is because investors and traders buy seasonal stocks in anticipation for a positive earnings report or another type of catalyst that can send the stock moving.

As a trader, you could look at these seasonal trends and stand to gain from taking advantage of the resulting rise and fall of a stock. Of course, this requires plenty of in-depth analysis and research.

Stock Market Trends

There are a few reliable stock market trends you can consider when thinking about seasonal stocks.

You’ll also see reliable highs and lows in certain markets at different times of the year. For instance, in December, many investors are adjusting their portfolios for year-end tax purposes. This can trigger some increased volatility.

Examining stock market trends and the seasonality of different stocks can help you create a stronger plan of attack when planning trades.

What’s a Good Seasonal Stock to Invest In?

Choosing a good seasonal stock to invest in boils down to common sense and looking at historical patterns. These historical patterns can be indicative of what will happen in the future. After all, history can repeat itself.

Just look at what happens with consumers in November–December.

What happens during this time of year? Consumers are spending!

They’re spending money on gifts they’ll give during the holiday season. And most of their money is going to retailers.

So given that these retailers do well this time of year, it makes sense to be swing trading their stock in anticipation of a positive earnings report or some type of news catalyst that will send the stock moving up.

Of course, that’s just one example. In general, the best seasonal stocks will make sense in just such a way. So research some potential ideas and begin to examine stock charts. Form a hypothesis, and support it with your research.

Be sure to look at trends and research the company in question before making a trade. And always use proper risk management techniques. Never lose more than 5% on a trade.

Why Should You Implement a Seasonal Stock Trading Strategy?

Having a seasonal trading strategy is a great way to make use of historical data. For instance, say that in reviewing a stock chart, you notice that a particular stock has high seasonality and always peaks from July through October, and then dips afterward.

If you see that the stock has done this for consecutive years, this could be a good indicator to buy in June when the price is traditionally low, and sell in October, before the price dips again.

You can also gauge certain sectors that might have more seasonality than others. For instance, oil, shipping, retail, health care, and banking are just a few of the industries in which you can notice seasonal trends.

Historical data and analysis learned from a trading platform like StocksToTrade can be extremely helpful in helping you detect patterns, but you can never tell the future.

Don’t buy a stock solely because it has a shallow history of perking up at a certain time of year. Back it up with fundamental research and technical analysis.

How to Use Seasonal Stocks in Your Trading Strategy

Considering the time of year when seasonal stocks are most in demand can help you form more solid trading strategies. For instance, you might not want to buy a stock during its peak season, because you might be paying a higher price for that stock during its “off season.”

Here, I’ll go through some examples based on the season and how they work.

Seasonal Stocks for Summer

I’ve found that the summer can be very profitable for short periods of time if you notice the trends.**

When the temperatures go up, it’s generally a good time to look at the stocks of companies associated with hot weather solutions like air conditioning, utilities, as well as travel-related services or products, since more people travel during the summer months.

Seasonal Stocks for Winter

During the winter, you’ll likely see an uptick in the stocks for companies providing cold-weather services and comfort solutions.

And like the temperature extremes that can happen in the summer, you’ll also want to look at the utility companies. These are the ones providing the electricity and natural gas to buildings and homes. When the temperatures get very cold outside, the gas and electric furnaces are working overtime, which means more money for the utilities.

Other stocks to buy during the winter could include businesses like Home Depot (where people might go for shovels and snow equipment), snowmobile maker Arctic Cat, and companies like VF Corp, which owns the winter jacket manufacturer The North Face.

Seasonal Stocks for Spring

Spring is generally seen as the time in between bear and bull markets with stocks.

Products related to agriculture, such as fertilizers, tractors, generators, and outdoor equipment of that nature may see a surge at this time of year.

During months like April, items like agricultural chemicals and lithium (which is used to make batteries, which are key for all sorts of production) often peak.

Seasonal Stocks for Autumn

In the autumn, it’s time to start thinking about the holiday season ahead.

Consumer goods and shipping companies rule the school at this time of year as industries gear up for the busy shopping season and shipping companies are busy moving products from country to country and state to state.

Retailers and shipping companies usually have strong fall months in anticipation for stellar Q4 earnings.

Recurring Events During the Year

Recurring events throughout the year can act as powerful catalysts for stock price increases or decreases. It’s all about looking at the patterns.

For instance, the Super Bowl is the biggest avocado consumption day of the year. So it makes sense that shortly before the Super Bowl, the demand for avocados will be higher, whereas demand usually dips immediately thereafter.

The same principle applies to stocks. Recurring events can cause a higher or lower demand for a given stock.

If you can tie a recurring event to a trend in a stock’s price, you can begin to notice patterns, which can help you become a better-informed trader.  

Strongest Months for Seasonal Stocks

What are some of the top months for seasonal stocks?

While it can vary, some of the typically highest-performing months for seasonal trends are July, January, and December. Let’s break it down:

July: July is well-poised on the calendar in advance of some major yearly milestones. First, you’ve got the back to school shopping season on the horizon.

Then, there’s also what’s referred to as the “holiday effect”. This is the time of year where there’s plenty of optimism before retailers gear up for big holidays.

December: December is a sort of unusual month in the stock market, but there are definite seasonal aspects at hand.

It’s often a time of big sales as traders ditch losing positions to gain tax write-offs; so, for tax reasons, they may want to make investments before the year closes.

January: January is often the slowest month for retailers. However, it’s a busy month for retail stocks, because in the first month of the year, the retailers post their sales figures from the most recent holiday season. Based on this, they may attract new buyers based on how successful they were.

Weak Months for Seasonal Stocks

There’s an old saying in the stock market: “Sell in May and go away.”

The wisdom behind this concept is the belief that the most gains will be earned between November and April, while May through October are the worst months for returns. But is that really true?

Many believe that June and September are among the worst months in the stock market. Here’s why:

June: Typically, June is slow in the stock market. Usually, big-cap companies have extremely slow moves, and there’s generally just not much going on. But this isn’t always the case.

There can be exceptions based on world events and business happenings. So it’s all relative.

September: September is often seen as a scary month for investing. The Dow Jones and Nasdaq typically decline during September trading.

While these are notoriously slow months, there are always opportunities out there … it’s just a matter of finding them.

Historical December Stock Market Trends

When it comes to trading in December, there are a few phenomena that you’ll hear traders refer to: the Santa Claus Rally and the December Effect.

The Santa Claus Rally: This is the idea that stocks rally during the final week of December.

This rally could occur because of year-end adjustments to investments and portfolios, or it could be due to the anticipation of a January rally.

The December Effect: This effect tries to explain why stocks perform better in December. It could be because good consumer news serves as a catalyst, or because of the fact that fewer bankruptcies are filed in December.

How to Come Up With a Seasonal Stocks List

Your first step toward creating a seasonal stock list is to evaluate seasonal trends.

In reviewing the general trends occurring at different times of the year, you can begin to make a plan for what industries and when you might want to invest.

Once you’ve assembled a list of potentials, it’s time to get to work with your all-important fundamental research.

Seasonality with Technical and Fundamental Analysis

Once you’ve identified a few seasonal stocks to consider, it’s time to do your homework:

Look at the data. Using a platform like StocksToTrade, begin to review the charts of stocks to review potential trends.

Set up alerts. Review and consider the trades to decide when might be a good time to get in and out, and set up alerts that can help you stay up to date on what’s going on with a stock.

Make a plan. Before you execute a trade, be sure to set up a detailed trading plan. Even with seasonality on your side, there’s still plenty of risk involved in any trade.

Be sure to be prepared by making a trading plan with pre-determined entry and exit points so you can keep emotions out of the trade as much as possible.

Why You Need to Sign Up For My Watchlist

Every great trader uses a watchlist. They study setups and create the list for the day ahead to time their entries on stocks. If a stock has a great technical setup coming into the trading day, they’ll add it to their watchlist and set a price target. If the stock reaches the point of entry, they’ll execute the trade.

The benefit to using a watchlist is that it can help you find stocks BEFORE they make big moves. After all, none of us want to chase a stock and be buying after it’s up 30% on the day. You want to get in before it moves 30%.

But often, new traders don’t have a list. They enter the trading day without watching any stocks, relying solely on scanners and “tips” from other individuals.

That’s why there’s my Weekly Watchlist. Every Sunday and throughout the week, I email subscribers the three penny stocks I’m watching.

To get a head start to the trading week, I urge you to sign up for the watchlist. It’s free; you just sign up with your email.

The Bottom Line

Many things in life operate on a seasonal or cyclical basis — stocks are no different.

Seasonal stock market trends are never absolute, but considering them is a fantastic way of refining your trading techniques. By expanding your knowledge of the market’s seasonal movements, you can get a better idea of how to choose stocks to trade in a more tactical way.

Do you consider seasonal stock market trends? What do you look for? Share your comments below!