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The Effect of Earnings Season on Seasonal Price Patterns

Summary:
Earnings Lottery Shareholders are are probably asking themselves every quarter how the earnings of companies in their portfolios will turn out. Whether they will beat or miss analyst expectations often seems akin to a lottery. The beatings will continue until morale improves… [PT] However, what is not akin to a lottery are the seasonal trends of corporate earnings and stock prices. Thus breweries will usually report stronger quarterly earnings after the summer season than after the winter season. You may not believe this to be possible, but many analysts are actually still surprised when breweries report strong numbers after the summer season. Share prices will often rise in such situations. Technology Stocks Also Exhibit Seasonal

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Earnings Lottery

Shareholders are are probably asking themselves every quarter how the earnings of companies in their portfolios will turn out. Whether they will beat or miss analyst expectations often seems akin to a lottery.

The beatings will continue until morale improves… [PT]

However, what is not akin to a lottery are the seasonal trends of corporate earnings and stock prices. Thus breweries will usually report stronger quarterly earnings after the summer season than after the winter season. You may not believe this to be possible, but many analysts are actually still surprised when breweries report strong numbers after the summer season. Share prices will often rise in such situations.

Technology Stocks Also Exhibit Seasonal Trends

Breweries are not the only companies whose earnings and stock prices exhibit seasonal patterns. In  fact, earnings seasonality is a feature of a great many different industries. As an example I have picked a well-known technology stock that exhibits seasonal fluctuations as well, namely Intel (INTC).

 

Intel Typically Rallies in April

The seasonal chart below shows the seasonal price pattern of Intel in the course of a year. This is not a standard chart of the stock price. Instead it was calculated by averaging the stock’s returns over the past 20 years. The horizontal axis shows the time of the year, the vertical axis the level of the seasonal index (i.e., the averaged percentage moves of the past 20 years). One can see at a glance at what time of the year Intel’s share price typically tended to rise or fall.

The Effect of Earnings Season on Seasonal Price PatternsIntel, seasonal pattern over the past 20 years –
Intel typically rallies in April after posting its Q1 earnings report.

I have highlighted the seasonally strong period from April 14 to May 02 in dark blue. In this time period of approximately three weeks Intel’s stock price typically tended to advance quite rapidly. The average gain amounted to 5.54%, which is quite a lot given the brevity of the holding period. On an annualized basis it is equivalent to a very impressive gain of +207.29%.

The move is driven by Intel’s Q1 earnings, which are usually reported between mid and late April. These have often delivered positive surprises.

Intel Rallied in 14 out of 20 Cases

Intel’s share price rallied in the seasonally strong period from April 14 to May 02 in 14 out of 20 cases. In the 14 years in which gains were achieved, the return over this time period averaged 8.90%, in years in which the share price lost ground, the losses averaged just 1.90%. What makes this time period particularly impressive is therefore not only the fact that the stock price rallied quite frequently, but also the fact that the average gain exceeded the average loss by a substantial margin.

The bar chart below depicts the return of Intel’s stock in the time period April 14 to May 02 in every single year since 1999. Blue bars denote gains, red bars denote losses.

The Effect of Earnings Season on Seasonal Price PatternsIntel, percentage return between April 14 and May 02 in every single year since 1999. Positive returns
were achieved in 14 of 20 cases, with the largest single gain amounting to 21.44%

In 2001 Intel experienced a particularly strong rally between April 14 and May 2, posting a gain of 21.44%. By contrast, losses were generally relatively small –  and above all rare, as the paucity of red bars indicates.

Intel is but One Example – Make Use of the Seasonax App to Find Others!

Intel is but one example of a stock exhibiting a strong seasonal uptrend in an extremely compressed time frame. There are a great many more individual stocks with exploitable seasonal patterns.

You can test the Seasonax App at www.app.seasonax.com and examine the seasonal trends of your favorite stocks and those of other potential candidates for purchase out of more than 10,000 securities!

PS: Sudden price gains tend to surprise many investors – but users of seasonal statistics have an edge!

 

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. You can find an introduction to the Seasonax app and in-depth information on what it can do here. Furthermore, here is a complementary page on the web-based Seasonax app, which costs less and offers slightly different functionality (note: subscriptions through Acting Man qualify for special discounts – for both the Bloomberg/Reuters and the web-based versions of the app. Details are available on request – simply send a note to [email protected] with the header Seasonax!).

Charts by: Seasonax

Image caption and editing by PT

 

 

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The Effect of Earnings Season on Seasonal Price Patterns 
 

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