Market’s Seasonality Accentuated By Macro and Political Developments

``All political theories assume, of course, that most individuals are very ignorant. Those who plead for liberty differ from the rest in that they include among the ignorant themselves as well as the wisest.” Friedrich A. von Hayek

In my opinion the effect of the prospective US government actions to shore up her banking system, aside from the other factors is likely to work against the expectations of the consensus.

Yet if seasonality performances would be our guidepost, assuming a certain material degree of accuracy, then September for the US markets could see some extension of the current weakness while October through December could likely be the strongest months (see figure 4).

Figure 4: Chart of the Day[1] /US Global Funds[2]: Seasonality of The Dow Jones and Mining/Metal issues

In other words, for the US markets, September could signify as a viable buying window for a 6 months trading opportunity.

Now of course, while any assessment of seasonality factors should be taken with some degree of caution, as patterns should NOT be interpreted from a single dimension, I’d say that based on the belated effects of the yield curve, the seasonality pattern could possibly play out because it would NOT only be backed only by statistical percentages (of patterns) but by four other factors as:

-the high likelihood of markets factoring in an improvement in general credit conditions,

-the bottoming of the current slowdown of the growth cycle or a pick up in the recovery phase from the current slack

-and importantly, the impact of global policies (steep yield curve) on inflation could intensify on the markets (oil $90-100?).

-outside the yield curve, one shouldn’t discount the realization of another set of quantitative easing as the political authorities resolve to shore up their banking system. As caveat, all current actions will have future negative ramifications.

And it would also seem that our observation about the rotational effects to the mining sector isn’t limited to only the Philippine markets[3] as US markets appear to highlight the same cycle (right window).

Outside of the recession of 2007-2008, the mining and the metal sector has had pronounced gains during the last 12 years, as gauged by sector’s annual performances over the last FOUR months of every year. As the commodity boom was enhanced during 2003-2006 boom cycle, this had similarly been reflected on the mining and metal issues.

We should see a redux of the same dynamics probably with accelerated momentum.

So the policy divergences between emerging markets and the major developed economies and the prospective money printing measures by the Ben Bernanke and US Federal Reserve which is likely to flood the world again with liquidity should lend support or drive up emerging market stocks and commodities.

And I’d recommend that any interim price weakness of mining issues as opportunities to accumulate for trade or to position against the emergence of the broadening impact of consumer price inflation.

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[1] Chartoftheday.com, Dow Jones Average Monthly Gain

[2] US Global Investors, Investor’s Alert- August 27, 2010

[3] See How To Go About The Different Phases of The Bullmarket Cycle, August 23, 2010