Does Tax Time Have an Effect on the Markets?

After looking over a number of charts this weekend, I found very few stocks showing potential for upside, or downside, breakouts. Volume can give hints of what's to come, and not surprisingly, volume was very low during the week.

I then checked the seasonal charts of the major indexes and sector ETFs, looking for a track record of some movement over the next several weeks. There was something that was common in many of them – a surge over the next 16 to 17 weeks in several of the sectors, but not in the overall markets.

The S&P 500 shows an upward bias over the next 6 months, a gentle, steady rise. It has averaged a 5.5% return over the next half a year:

But looking at the ‘success rate' over that time, most periods are barely above 50%, meaning the number of years with gains has been only slightly more than the number of years with losses:

I will say that if I focus on one specific period, one of the ones with a higher success rate like the next 12 weeks, the success rate is higher in recent years as those four losses in the early 80's aren't considered:

Still, these results don't constitute a ‘strong seasonal' pattern. I would not make a trade based solely on the above seasonal information.

But a few sector ETFs jumped out at me. IYC, the iShares Dow Jones US Consumer Services ETF, has as much as a 5.1% net gain and an 85% success rate over the next 16 weeks. There is a spike in net gains leading into the 16 to 18 week period:

The success rate jumps, meaning the 16-18 week period produced more gains than the other periods:

I moved on to IYF, the iShares Dow Jones US Financial Sector ETF. It too showed a peak in both net gains and success rates around the 16 to 17 week period. The gains aren't as strong as IYC, but still noticeable:

XLV, the Health Care Select Sector SPDR ETF, shows a success rate as high as 73% over the next 16 weeks, with an average 3.9% gain. The past three years have produced nice gains:

What is it about the 16 to 17 week period?  I brought up a calendar and counted out 16 weeks from today. Interesting. The only noticeable event 16 to 17 weeks from now is April 15th, the tax deadline.

It could be that the third week of April is the start of Q1 earnings reports. But 2 to 3 weeks from now is the start of Q4 earnings reports, and the ETFs don't show much of a spike in that period.

Perhaps, as traders and investors get their taxes filed and out of the way and know their standing financially, they get back to business – buying stocks. The standout of certain sectors versus the overall market shows that, at least in the past, they have been selective in which sectors they put their money into.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, including the answer to the above question, type in www.markettamer.com/seasonal-forecaster

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2013 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

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