The first posting in this series, Stocks To Trade In September, appeared on August 22nd.
Cycles are of two types, static and dynamic. A static cycle is a rhythm that remains relatively unchanged, such as the tendency for the broad averages to rally in the spring, correct in the autumn and to rally in the last quarter. This approach can be applied to individual stocks. Below, we see the annual histogram for Apple. The bars represent the expected return from 1980. We see that October has been the strongest month in terms of expected return. The stock has risen 71% of the time for an average 6.6% gain, an expected return of about 4.7%.
Chart 1
The annual cycle is not the only cycle that is in effect. In order to determine what other cycles might be operative, a scan is run determining the Apple weekly cycle which we see below.
Chart 2
September has not concluded but let us monitor the stock recommendations from the August 22nd posting. The DJIA is up 2.0%. Of the six buys, five have risen for an average gain of 4.21%. Of the seven short sales, three have declined for an average gain of 1.73%.
For the month of October, this concept is applied. First, the Dow Jones 30 stocks were ranked from the best performer to the worst by calculating the percent of Octobers in which the stock rose in that month. The top 15 were screened in the following manner. If the weekly cycle pointed up, the stock is considered a buy. In order to qualify, the weekly cycle had to rise for at least 21 days in the month. The traditionally weakest stocks in the month were screened in order to determine if the weekly cycles fell in the month; the same 21-day rule applied.
The seasonal screen for the month is presented below. The number of years of data is in the last column. The % Times Return column shows the percent of months in which the stock rose. The Return column shows the average percentage gain in the month. The Expected Return column is the product of columns two and three. We can see that Apple has been trading for 38 years and has risen in 71.05% of all Octobers. The average return has been 7.23% and the expected return is 5.13%.
Of the top 15, these stocks show rising weekly dynamic cycles for at least 21 days in October and are considered buys for the month:
Apple
United Technologies
Cisco
Pfizer
VISA
Travelers
Coca Cola
Regarding the bottom 15 of the October performers, these stocks show declining weekly cycles and are suitable short sales:
MMM
Walmart
Home Depot
Nike
I add that the monthly cycle for the overall market does rise in October, so the longs are favored in such a scenario.
