This Sector Has Double-Barreled Upside Potential
Seasonality says September belongs to the bears. But somewhere in every downtrend, there’s a corner of the market setting up to run the other way – and right now, one sector is less than a month from doing exactly that.
In my last column, I pointed out that while seasonality is negative for the S&P 500 over the next few months, you can always find stocks that can buck this bearish trend.
Today, let’s look at one sector that has a bullish seasonal pattern, according to our Trade Cycles indicators, that’s due to start in less than a month: the S&P 500 Energy sector, represented by the SPDR Energy Sector ETF (XLE).
As you can see in the XLE Trade Cycles chart above, XLE has risen 60% of the time from Sept. 30 to Nov. 25, with average gains of nearly 5% over the past 15 years. That annualizes to a +31.7% total return!
And within this two-month seasonal period spanning almost two months, there is a very bullish window from Oct. 28 to Nov. 17, when XLE climbs 80% of the time.
So, let’s use our TradeSmith Screener tool to find energy stocks that also have bullish seasonal patterns in store.
Simply login to TradeSmith Finance, and then click on Invest from the main menu. Next, click Screener, then the + Add Filters button.
Here are a few simple filters I chose:
Please Note: If you don’t see this in your TradeSmith Finance dashboard, and would like to, please call our dedicated Customer Care team at 866-220-1107 to find out how to get access.
- Health (short-term) > click Green
- Sectors: > click on Energy
Now, let’s add two more filters. Scroll down to our Trade Cycles category and click to open, then add these Trade Cycles filters:
- Optimal Seasonal Pattern Only > and select Yes
- Days to Seasonality Pattern Start Date, > select less than 60
Next, let’s add one final filter for extra confirmation that a stock is poised to move higher. Just below the Trade Cycles category, you’ll find Predictive Alpha. Click to open and add:
- Prime Expected Move > set at more than 5%
This Screener will quickly filter through our database to find healthy energy stocks with Optimal Seasonal bullish patterns beginning in the next 60 days.
Trade Cycles identifies consistently recurring seasonal trends based on historical data, guiding you to high-probability trading opportunities at certain times of the year.
And to double-check on seasonality, I’m also filtering for stocks with Predictive Alpha’s Prime Expected Move of +5% or more over the next month.
Predictive Alpha uses AI-driven analytics to generate daily price projections for every stock we track, out to 21 days (about one trading month). These projections are based on each stock’s unique trading patterns and factors in the overall market trend.
When I ran the screener, I got 13 results. Sorting by the Prime Expected Move column puts the stocks with the highest projected price increase at the top of the list.
Here are the results:
Mike Burnick’s Bottom Line: All of these stocks are expected to trend higher over the next 60 days, according to our Trade Cycles seasonality indicators – regardless of the market’s next move. Plus, our proprietary Predictive Alpha system projects bullish price moves for them over the next month. That gives them double-barreled upside potential!
Good Investing,
Mike Burnick
Senior Analyst, TradeSmith
P.S. Before you close the book on energy, keep an eye on out for my colleague Jeff Clark, Senior Analyst behind Delta Report. Jeff has traded options for a living his entire career – and while I’ve been showing you where energy’s seasonal tailwinds are setting up, he’s watching the sector through a different lens entirely.
Recently, Jeff made a clear case on why traders should take profits on the sector, because “Big Oil” may be heading for a decline. He turned bullish on XLE two months ago and caught a 20% gain, and now he’s tracking the signals that tell him when to act on the next move.
Jeff’s bigger thesis, though, goes well beyond energy: He believes buy-and-hold is dead, and that today’s volatility is the perfect setup for the right options strategy. It’s the idea behind his 12 trades to $1 Million Challenge – and since launching in May, he’s already booked three winners of 166%, 91%, and 153%.
Now he’s about to re-open a limited number of spots – and the best part is, it not too late to get in.
Stay tuned. Details coming soon.