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August
29
2018

Evade Market Weakness in the Summer by Shifting Your Perspective
Dimitri Speck

Alternating Seasonal Patterns 

In the last issue of Seasonal Insights we have talked to you about biotech and pharmaceutical companies as industries that withstand the traditional summer weakness in stock markets. Six weeks ago, we have shown that gold is an asset one can purchase in the summer months to offset this phenomenon.

Warning: don’t let the media mesmerize you in the summer months – the stocks of media companies are a veritable seasonal minefield in August to October. [PT]

Naturally, investors also have the option to use traditional patterns in a different way. In this issue we will show you how a distinct seasonal pattern which generates recurring losses represents an opportunity to profit by going short. Let us take a closer look at the media sector, which is traditionally performing very poorly in the month of August.

Traditional Summer Slump for Media Corporations

The months of July and August cause a lot of headaches in financial markets worldwide. Stock prices tend to weaken and profitable investment opportunities become scarce. However, some industries are impacted by particularly severe seasonal weakness in the summer. Editors around the world are not only sweating on their desks because of the summer heat – they are also desperately looking for news stories.

Governments in many countries go on a summer break and the economy seems to be in a holding pattern until autumn as well. A newly born panda baby in a provincial zoo suddenly becomes a sensation and as a result readers soon get bored. As a result sales in the media sector traditionally drop in the summer months.

The curse of the slow news day… [PT]

We have used our newly launched web app to find several strong corresponding seasonal patterns for some of the biggest media corporations. Let us take a look at some examples.

Most American Media Corporations Suffer in August

The first stock we have identified is Viacom, which was founded in 2005 after the original Viacom Inc. was split up into CBS Corporation (as the original corporate entity) and a new incarnation of Viacom Inc. Its is headquartered in New York City and has annual earnings of more than 13 billion USD from cable television, broadcasting, publishing, radio and motion pictures. The company employs roughly 10,750 people.

Viacom has experienced severe losses in August, which were especially steep in 2015 and 2017

In addition we analyzed CBS Corporation. CBS Corporation actually founded Viacom in 1971 but was acquired by its subsidiary company in 1999 in a reverse merger. As mentioned above, in 2005 the companies were split up again by creating a new incarnation of Viacom Inc, while CBS Corporation continued the business of the original Viacom. CBS operates in commercial broadcasting, publishing and television production and has annual revenues of almost 14 billion USD.

CBS has suffered losses in two thirds of the weak seasonal time-period and these losses were quite severe as well.

To show you that this phenomenon is not exclusively confined to the US, we have  analyzed a number of international stocks as well. We have found an especially interesting pattern on the Hong Kong Stock Exchange. Oriental Press Group is an investment holding based in Hong Kong, principally engaged in the publication of newspapers. It has annual earnings of almost one billion HKD.

Oriental Press Group has exhibited strong losses in the month of August in every single year of the past decade (the seasonal decline continues until October, but in August it is particularly rapid and steep).

Individual Industries Exhibit Distinct Patterns

What can one learn from the above examples? It is not a particularly unique insight that stock prices often tend to weaken in the month of August. However, by using a systematic approach and a tool such as the Seasonax app, one can identify patterns that go beyond such simple truisms.

Two weeks ago, we showed you that the seasonal patterns of the biotech and pharmaceutical industries diverge from the general stock market trend. This week we have shown you an industry that exhibits a seasonal pattern generating particularly severe losses. One can take advantage of this by either taking a short position or by simply exercising greater caution with respect to stocks from the media sector during the summer months (by either avoiding or hedging them).

A fate best avoided… [PT]

In conclusion, by employing this systematic approach one can classify certain industries with regards to their seasonal investment potential. By doing so, trading and investing becomes both more time-efficient and more profitable. Find your own seasonal patterns and carry out your own analysis by either using the Seasonax web app (details on the web app can be found here) or alternatively the Seasonax app for Bloomberg Professional terminalsor Thompson-Reuters Eikon.

Always remember: there are no guarantees in the markets, but you can let the probabilities work in you favor!

Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. For in-depth information on the Seasonax app click here (n.b.: subscriptions through Acting Man qualify for a special discount – for both versions of the app! Details are available on request).

 

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