‘Tis The Season

2019-10-31 | Henry Gambell

As we wrap up October and roll into November there’s one thing that always comes to mind for me – McDonald’s. Wow. McDonald’s you say? Thrilling. Are you there for the burgers or the milkshakes? Honestly neither and I’m not here to have a discussion on the food. The reason McDonald’s comes up for me in November is that it’s the first stock I started embracing around seasonality.

Seasonality is defined as “a characteristic of a time series in which a security experiences regular and predictable changes that recur every calendar year. Any predictable fluctuation or pattern that recurs or repeats over a one-year period is said to be seasonal.

I didn’t always embrace seasonality. In the infancy of my career I thought “every moment in time is unique, be prepared for anything.” And while that is still true to a certain degree, there are no guarantees, there are seasonally repeatable patterns that are worth studying in an attempt to capitalize on them.

McDonald’s (MCD) is the first stock that comes to mind for this way of thinking, and is timely for this post, as it was the first stock I saw with a flawless record. The shares have seen positive performance every November for the past 20 years. When something shows that kind of consistency, and especially after we saw such a sharp sell-off in October of this year, it’s probably worth considering for a trade.

There are a few ways to get this data, but I’ve always done it by referencing the “Seasonality” feature of StockCharts.com. This data is totally free, and allows traders to pull anywhere from 1 to 20 years of data for comparison. In these first chart images you can see the progression of my thinking. First I look at 5 years and see that the stock has always shown positive performance, gaining an average of 5.0% in November over the past 60 months. Then you can adjust the chart to show 10 years, and finally 20 years of data where we see the stock has yet to have a down November and averages a gain of 3.8%. This may be attributed to retail sales, which typically sees higher spending during the fourth quarter of the calendar year, but whatever the reason, it makes sense to be looking for bullish opportunities.

Seasonality feature of StockCharts.com

The past 60 months

10 years

20 years

There are spots like this with MCD where maybe everyone’s grabbing a Big Mac on their way to start their Christmas shopping or maybe it’s a diversion from the holiday turkey that didn’t turn out quite right. Then you’ve got other spots like Intuit (INTU).

Looking at the Quickbooks pioneer we’ve got another stock that shows a perfect track record for the past 5 years in November, gaining an average of 3.3%. If we use 8 years of back data we see similar results. However, if we pull 20 years of data we see a very different picture. We see a stock that shows no seasonal traits and didn’t offer an edge in any month. In my mind this shows a company that’s been able to get it together in recent. Whatever they’ve done to shift their business model, it tends to perform much better in November now than it did in previous years. This stock might be worth watching for a run into earnings as it currently tests the 200 SMA.

Gaining an Average of 3.3 Percent

Results

Very Different Picture

The last stock we’re looking at is the opposite of what’s been discussed so far, but it can be just as helpful. This doesn’t apply to November, but August, where Disney (DIS) hasn’t had positive results for that batch of 31 days in the past 5 years. That’s good looking back and it was good for 2019.

5 years

Good for 2019

In conclusion, we don’t know that MCD is going to be up in November of 2019. Nor do we know that INTU will have positive results around their Q3 earnings, but it is one additional piece of information that when added to a sound trading plan can give us a little more edge that I know we’re all looking for.

November of 2019