7 Little Known Events that Can Make You Money Around June
Market seasonality occurs when a financial instrument is corralled into a behaviour by circumstances that are known in advance. These generally evolve around scheduled events and follow a logical process of buying or selling in the instrument that is backed by many years of institutional behaviour.
Some Upcoming Seasonal Events:
Last Week of June
The last full trading week of June sees institutions place reserve funds into the market for the end of financial year. This lifts market values before 30th June for fund performance calculations. In the last 30 years this has occurred every year, barring 2, on the ASX 200 (XJO); 2003 and 2010. The stocks differ each year but the effect on the index is the same every year.
Australian Index High Price in June
The last trading weeks see the market rise. However, in the last 20 years, this has never been the high of June. The June high comes consistently after the Queen’s birthday holiday. This is in tune with the US and UK markets which do NOT use 30th June as a financial cut-off. The market traditionally goes down from the high and then rises into 30th June again which forms a lower high. Buy Top 200 stocks prior to Queen’s birthday weekend for a run-up.
Gold Prices in June
The GOLD price in $AUD/$USD is hard to accept as a seasonal commodity. It is representative of Fear and Uncertainty i.e. North Korean missile testing saw gold jump through $1350 each time. It has also risen into Chinese New Year each year for the last 25 years as demand increases. Gold and the $AUD have a solid relationship which sees – gold up and $AUD/$USD up. Gold down and $AUD/$USD down. Gold has fallen from the second Friday in June every year for the last 10 years. This affects, Gold stocks, indirectly resource stocks, and sees a lower price generally in $AUD. It is also accompanied by a rising $USD towards 4th July.
The Top 200 Index (XJO) and the All Ordinaries Index (XAO) almost always run down after the last trading week in June (the last Friday in June). The market sees institutions that placed reserve funds into the market for 30th June, remove them and take them back into reserve for the commencement of the new financial year. This enables traders to trade short through this period. In the last 20 years, this has been highly effective with two (2) notable exceptions; 2007 saw the market rally to a new high in July with changes in US tax law for superannuation. The second was 2013 where the market fell 700 pts in June and then rallied back strongly in July.
This is an excellent event for Investors that are looking to pick up Top 50 stocks at a discounted price for the medium and Long-term as these stocks fall in this period.
Oil is an understandable seasonal mover. With more than 70% of the world’s population living in the Northern hemisphere and more than 75% of the world’s population living below 0 degrees in winter, Oil and Energy oscillate with supply and demand. Winter and summer affect the price of oil each year.
Oil prices spike up in mid-May – generally accompanied in the last 10 years with changes in the $USD. Oil prices then run down into July for summer (northern hemisphere). They then commence a run-up as Oil is restocked for winter in October. In the last 20 years – the notable acceptation to this rule was 2007 where oil went from $65 to over $100 in almost a straight line.
Oil and energy stocks accelerate during this time. Short trading from May or at least protection from Energy falls with the opportunity to buy or leverage from July.
Our market tends to follow the US market with more than 20 stocks from our market listed in the US. We have no stocks in the DOW 30 Index but several stocks in the S&P 500 which closes about 2 hours before our market opens. This provides considerable influence in our market.
The S&P has a known buying curve through the June- July period. As it goes towards 4th July holiday, Institutions play less of a role in the US market and the market rises into 4th July. This normally carries over till the 4th July weekend, 7th-8th July this year. The market normally takes back the rise in the following week. If the S&P market rises 40 pts into 4th July – it will normally lose 30-40 pts in the following week. In the last 10 years this has occurred 8 times with the 2008 GFC seeing the market fall into 4th July and then continue to fall, and 2013 where the market rose into 4th July and then continued to rise.
This can be traded using options in the US market or more easily traded with futures and CFD’s on the S&P 500 Index each year. The down leg (after 4th July) provides further downforce to our market as institutions take cash into reserve for the September final dividend cycle.
The Australian market changes its nature in August and is NOT likely to trend. Volatility increases and the market is likely to move violently in either direction. However, in the last 20 years, the Top 200 Index (XJO) has returned to within 70 pts of the beginning of August - 17 times. 2 years were GFC years and the other notable year was 2015 where the market fell 10% (500 pts) over August.
The nature of the Boomerang is tradeable from the point of watching how far it moves from the beginning of August. Once the Index moves 5% - it is likely to return to the beginning of August price.
If the Market moves up by 5% - profit can be taken or insurance can be placed against the current price for an upcoming fall in value.
If the market moves down by 5% - new stocks can be acquired and current positions can be increased, or upward insurance can be taken for a short-term profit.
Once again, the Index offers an easy way to ensure positions and make short-term profit.
Jody Elliss is a derivatives specialist who offers training and education in short-term trading and portfolio defence.
Further information: www.investorcentre.com.au