V.16:11 (522-525): Seasonal Stock Index Trades by James Greenwood

Here are different seasonal strategies for trading the Value Line Index compared with the New York Stock Exchange Composite Index and the Standard and Poor's 500.

Most stock market traders are familiar with the January effect, which is the tendency for smaller issues to outperform blue chips at the turn of the year. But January is certainly not the only time the stock market exhibits seasonal tendencies with the potential to be exploited in trading strategies. In fact, with the January effect apparently fading in recent years as it becomes better known, this may be a particularly good time to explore other seasonal trading opportunities. One of the simplest ways to exploit seasonal market tendencies is through trades in stock index futures contracts. Using futures, a trader can in a single transaction buy or sell an index representing a large basket of stocks.

With the introduction in recent years of a number of new futures contracts on different indices and in different sizes, the trading possibilities are greater than before. To research strategies, however, only three product lines have a history extensive enough to draw upon for long-term analysis — contracts based on the Standard & Poor’s 500 index, the New York Stock Exchange (NYSE) Composite Index, and the Value Line. These three indices are each unique in market representation and thus present unique seasonal spread trad-ing opportunities.