Shorts in The Wintry January

The market has been ripping higher and the trajectory of NASDAQ Composite in 2013 was from the lower left corner to the upper right corner in an almost straight line. In the month of December 2013, the index gained 6.5%. Still, it behooves to pay attention to the seasonal tendencies, which say that computer tech and internet stocks usually weaken during the month of January. The trend is significant enough to provide nice trading opportunities to profit from going short.

Our seasonal portfolio uses six broad ETFs to exploit this opportunities. Since 2000, this set has produced 65 trades at 69% winning rate with average return of 4.1% for a holding period of only 41 calendar days. This results in an annualized return of 36.5%.

Seq ETF # of Trades Win % Avg. Return
1 IGM 10 70% 5.0%
2 IGN 10 60% 6.1%
3 IGV 10 80% 4.4%
4 IXN 11 64% 4.0%
5 IYW 11 73% 4.4%
6 XLK 13 69% 3.9%

Once the year turns around, we start looking for short opportunity. Usually we go short in the first few days of January and then hold the trades for roughly 40 days. The entry and exit signals are generated by a proprietary algorithm which combines oscillators and support and resistance levels.

Not all ETF trades are triggered every year. For example, there were no trades in 2012. Year 2011 and 2004 saw only three trades. Only five trades were triggered in 2013 and 2014.

The year 2012, saw all trades generating losses. Year 2008 saw an average gain of 13%, with  six winning trades. This year was mixed – tow gains and three losses.

ETF Entry Date Entry Exit Date Exit Ret
IYW 02-Jan-14 87.53 07-Feb-14 87.62 (0.1)%
IGM 02-Jan-14 88.74 13-Mar-14 91.02 (2.6)%
XLK 06-Jan-14 35.16 07-Feb-14 35.10 0.2%
IXN 06-Jan-14 81.74 07-Feb-14 81.35 0.5%
IGV 06-Jan-14 81.02 03-Mar-14 85.72 (5.8)%


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