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Tis the Season!

Seasonality is a real thing in the investment arena. Some annual market moves actually relate to the seasons, like natural gas prices rising in the heat of summer and freeze of winter as air conditioner and heater demand ramps up.

Other seasonal moves have nothing to do with the weather – but are just as reliable.

The one I want to point out: outsize gains over the next three months.

The chart below shows the Toronto Venture Index from mid-December to mid-March each year since the winter of 2001-2002.

Almost every line boasts a positive slope. Even more significant: most of these three-month gains represent a significant out-performance of the index over the rest of the year.

Of the 13 years covered:

  • The period between mid-December and mid-March has outperformed the rest of the year 12 times.
  • The Venture Index has only lost ground twice in those 13 years, compared to six January-to-December losses
  • Twice the Venture Index achieved multiples of its annual gain in the December-to-March period.
  • Four times the Venture Index gained December-to-March before going on to end the year down.
  • Three times the period from December to March provided an outsized share of the year's gain.
  • One other year the period offered downside protection, losing only 6% of the year's overall loss.

Predicting how commodities, explorers and miners, the overall markets, and global economies will perform during 2015 is impossible. A multitude of intertwined forces are at play and it will take time to untangle them.

That doesn't mean profits are off the table! If history repeats itself – as it so often does – the beat-down resource sector will show some life between now and March.

And there is more than seasonality supporting the idea that we are looking at a three-month window of opportunity.

With the current bear market a few months shy of four years, it has officially claimed the title of longest small-cap mining correction in 30 years. Canaccord Genuity tabulated the numbers:

The rebounds that followed previous bear markets each included several periods of outsize returns – usually starting with the first few months.

The 1984-1997 bull run, the 2008-2011 bull market and the mother of all 1999-2007 bull market each started out with a bang, gaining sharply in their first three months. Only the 1991-1996 bull market was a bit slow to establish, and it still notched up a gain over its first three months.

Seasonality + Potential for an early rebound surge = A few good months ahead

Whether the surge will be sustainable I do not know. But that doesn't matter if your goal is to lock in some quick gains to start the year.

The plan: buy resource stocks now with the commitment to sell…

  • Once a stock gains 30%. Conservative investors should sell all their shares at this point. Those willing to stomach more risk should sell enough to take their initial investment off the table, holding onto their remaining 'free' shares for additional risk-free upside.
  • All or the rest of your holding before Mar. 15th – even if things still seem fine. The seasonal tide can turn very quickly.

This isn't a concept I can claim as my own. Many successful investors play the December-to-March game every year – especially when the overall picture is unclear. The additional buying pressure from seasonal investors actually helps the market rise.

Of course, if it becomes clear before the middle of March that this is indeed the start of a real bull market the plan could change. I think that unlikely. I still believe gold bottomed on Nov. 5th, but just because we've hit bottom doesn't mean the ride back up is imminent.

I suspect a sideways summer is more likely, a calm that in hindsight will appear as the final chance to buy miners and explorers before the next commodity upswing.

For all those investors anxious for some positive numbers before then: play the season. For advice on the best stocks to play with, subscribe to Resource Maven: Turning Point.

Tis the season!

To learn how to turn resource knowledge into investment success: subscribe to Resource Maven: The Turning Point.

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