Stocks have historically performed well in March and April. In 14 of the last 20 years, the S&P 500 has been up during the first two weeks of the month (70%) and the average increase during the month is 1.2%.
During the month of April, the market has moved higher in 16 out of the last 20 years, increasing by an average of 2% on an annual basis.
Over the past few decades, there have been a few stocks that have greatly outperformed the overall market, including Linde, Pioneer Natural Resources, and Yum! Brands, all of which have produced average returns of over 7.4%, with a win rate above 75% during the trade period.
As noted by Trading.biz analyst Cory Mitchell, such statistical data can be useful for identifying candidates for trades, but is based on historical data. It doesn’t necessarily provide an indication of how the year is going to turn out.
As a result of all this, YUM stands out among these three stocks as it tends to have lower drawdowns as well as smaller losing trades than the two other stocks (when they occur). It is important to limit losses to a small fraction of the account on any single trade when making short-term trades in these stocks, or any other stock that may not play out this year because historic trends may not repeat themselves.
Yum! Brands Inc. (YUM)
I have observed that between March 22 and April 24 of the past 26 years, YUM has moved higher in 22 of those 26 years (85% of the time).
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The average return on 26 trades was 7.46%
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During the time frame of the trade, the biggest profit a trader has made is 50.05% of the trade amount
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The biggest loss incurred during the trading period on a trade was -5.46%.
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There was a significant drawdown of -10.91% during an open trade when I was engaged in it
A drawdown is a term used to describe the largest open loss experienced during a trade, whereas a loss is the variance between the entry and exit prices of the trade based on the time frame in which it was executed.
On the basis of historic trades, YUM has the most modest drawdown and loss of the three stocks mentioned in the previous sentence. It also has the lowest average return of the three stocks mentioned.
Pioneer Natural Resources Company (PXD)
It has been noted that the PXD has increased in 20 of the last 26 years (75%) between March 14 and April 18.
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The average return on investment is 10.08%
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Profitability: 30% was the biggest profit for the company
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The largest loss was -11.26%, which was the biggest loss of the year
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One of the biggest drawdowns was -18.26%
There are a number of stocks on this list with high average returns, but these stocks have the lowest win rates (77%), as well as larger losses and drawdowns than YUM.
Linde PLC (LIN)
It should be noted that over the last 31 years, LIN has moved higher between March 6 and May 3 in 26 of those years (84%), while the prior stocks required holding the trade for approximately a month, while LIN’s holding period is roughly two months.
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Average return: 8.25%
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Biggest profit: 56.17%
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Biggest loss: -7.94%
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Biggest drawdown: -23.64%
I am very interested in learning more about LIN because it has a higher average profit than YUM, but it has a lower average loss than PXD. Its largest loss, in terms of historical drawdown, is larger than YUM yet lower than PXD.
It is a good idea to trade strong seasonal stocks during the holiday season
In the following chart, you can see how all three stocks have held up over the last year in comparison with one another.
There is historical evidence that these stocks have done well during the months of March and April. However, seasonal tendencies should not be relied upon in isolation. Trend analysis and overall market conditions need to be considered as well. Fundamentals may also enter into the equation.
In the current stock market environment, major stock indices like the S&P 500 and Nasdaq 100 are in uptrends. Other major indices are in uptrends as well, such as YUM and LIN, while PXD is pretty flat for the last few months, but recently moving up.
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