Seasonality Indicator

Financial indicator based on the assumption that security prices go through predictable changes within the same period of every year: a quarter, month, holiday period, peak period.This indicator is mostly used to predict movements in the price of commodities, such as soybeans.

On the equity side, the seasonality indicator is justified by fundamental reasons: earnings, tax season. Over the last few years, seasonal patterns in the stock market have been detected based on human behavior. For example, around Christmas, the market seems to rally upwards due to the holiday spirit and investment into the market, starting the year on a clean slate. Other patterns include liquidations at the end of each month to pay for month-end costs and fund managers selling losing positions to improve end of month performance metrics.

Investors can use this data to predict price movements in a specific period of time, based on an asset’s historical performance. However, investors should be aware of the macroeconomic environment as this can have an effect on price movements predicted by past performance.