Remember, remember, to buy in November
NOVEMBER is often considered one of the worst months of the year: the days are getting shorter, the holidays are still at least six weeks away and it is markedly colder and wetter. In short, not a month to get that excited about. That is, unless you are an investor.
Forget the dismal weather and impending darkness because November is one of the best months when it comes to stocks. Historically, the S&P 500 has enjoyed its best performance in November, and it is also the second best month for the technology-focused US Nasdaq index.
And plenty of investors subscribe to the old “sell in May, come back in November” adage – a strategy which has outperformed the Dow Jones Industrial Average since 1950 – so there are plenty of investors waiting to buy into equity markets in November. So with these stats in mind, should contracts for difference (CFDs) traders be ready to jump into long equity positions this month?
Now there is certainly no guarantee with historical trends that they will hold every year, so investors should not expect to rely on them fully to make profits. But nonetheless, statistics show that November tends to be a month when equities gain.
Over the past 10 years, both the Dow and the S&P 500 have seen seven monthly rises and they have ended the month with a loss three times (2008, 2007 and 2000).
But while you are more likely to end November with profits, pick a bad year and your average losses will be much greater than your gains in a good year. Over the past decade, the seven positive Novembers saw average gains of 3.4 per cent but the three poor years saw average losses of 4.6 per cent. For the S&P the losses were even greater at 6.3 per cent while the good years only saw an average gain of 3.8 per cent.
During a bear market the November losses tend to be quite bad – as much as 5 per cent on the Dow in November last year and the same lost in November 2000 – and traders should do their utmost to limit their potential losses, says Joshua Raymond, market strategist at CFD-provider City Index.
But a good November will normally feed through into gains in December and January, so if you think we are over the worst then it could be quite a fruitful month, he adds.
November tends to be a good month for stocks because there’s a lot of goodwill going into this period with Christmas coming up. This means that people are normally more willing to buy something rather than sell it, boosting the markets. But so far this month, the mood has been rather mixed and the trading choppy. Although both the US and UK stock markets are up on the beginning of November, these rises mask large daily moves which saw the FTSE drop back below 5,000 and the Dow to 9,771.
And with the US earnings season relatively upbeat, it is now the turn of the UK stock market to keep the upward momentum going. Big British names such as Barclays, HSBC, Vodafone and J Sainsbury are all due to report this week, so eager November buyers should be watching these results to determine the future mood of the market, both for the rest of this month and for the rest of the year.
If the FTSE 100 can break out of the 5,000-5,300 range that it has been stuck in since the beginning of September then the momentum could carry the market even higher. And should it dip back below the 5,000 mark, then bullish buyers should use these lower levels to enter the market.
But if the index remains range-bound, then CFD traders focused on the short-term can use the range to swing trade. November is typically quite a volatile month with a decent amount of volume. This should give day traders plenty of liquidity and enough large daily moves with which to accrue profits.
With the historical trends suggesting November is a good month in which to pick up stocks, CFD traders looking to enter the market might well choose to do so now. But with the potential for greater average losses and the likelihood of high volatility then this month is unlikely to be straightforward for traders.
CFD PROFILE SPOT GOLD
Spread: 0.5 basis points
Margin Requirement: 1 per cent
Trading hours: 24 hours with a 45 minute break between 5.15pm and 6pm Eastern Time (12.15pm-1pm UK time)
(information from GFT)
Spot gold surged yesterday to a new all-time high of $1,110.85 an ounce in intra-day trading on Monday. The precious metal has gained as much as 25.2 percent in 2009, driven by persistent weakness in the US currency. Gold is seen as a hedge against inflation and the rising cost of borrowing.
It’s not just gold bugs who are bullish about the prospects for the precious metal either. A number of analysts still think that its upward trend is intact.
UKCFDtraders need to be aware that because the CFD position is held in dollars, you may be affected by changes in the exchange rate. (See chart.)