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Here we run a test of using the charts available at www.seasonalstocks.com as the basis for short selling. The "advantage" of using these charts over our own is that these charts were generated in 2000, meaning that we could use them to backtest predictions for 2001-2003 without cheating. The procedure basically parallels that of our long-side charting test, but here we're going short.
Below are the results of the test. The numbers are percentage gains and losses. We also show the performance of the market (as measured by the Russell 3000) during the periods examined. If a shorted stock outperformed the market (i.e. the stock price dropped more than that of the Russell 3000), you see a green cell. Losers (stocks that gained more than the market) get a red cell.
Below we count 70 green cells and 40 red cells...the "seasonal stocks" outperformed 64% of the time. Using some college statistics, there's about a 0.2% chance of that happening by chance.
The average "seasonal short" outperformed the market by about 2.75% during its holding period, which ranged from one month to seven months. Note that the "seasonal shorts" underperformed the the strategy of shorting the broad market a bit in 2001, were quite a bit stronger in 2002, and also outperformed the market nicely in 2003 (though, given the big gains associated with the year 2003, shorting the broad market this way would still have lost you money).
There are a number of objections that could be raised regarding this "study". We've already discussed some of them on our historical test of using seasonal charts as the basis of buy decisions. Another objection relevant only to short strategies is the fact that shorts are liable for the payment of dividends if the stock is borrowed during the record period...some of the gains (and green cells versus red cells) below would shrink (a tad) if this were factored in.
Our quick verdict: we're rather surprised how nicely this strategy worked in its 3 year history. Note also that our long-side test of using a charting philosophy also produced market-beating results over the same period. It's definitely worthwhile to pay attention to this sort of investment approach.
| Stock | Holding Period | 2001 | Market | 2002 | Market | 2003 | Market |
| 3COM | Feb 15-Apr 15 | 53 | 12 | -11 | -1 | -18 | -6 |
| ADCT | July 15-Aug 20 | 29 | 2 | 28 | -3 | 17 | 0 |
| AAPL | May 15-Jul 5 | -7 | 2 | 30 | 10 | -8 | -7 |
| Sep 1-Oct 1 | 16 | 9 | -1 | 3 | 9 | 0 | |
| AMGN | Jun 1-Jul 5 | 9 | 3 | 23 | 6 | -3 | -4 |
| AT&T | Mar 15-Aug 30 | 17 | 2 | 22 | 22 | -17 | -18 |
| BMC | Jun 5-Jul 5 | 5 | 5 | 16 | 6 | 7 | -2 |
| Mar 15-Apr 20 | -35 | -6 | 17 | 4 | 10 | -4 | |
| BA | Sep 15-Oct 20 | 5 | -5 | 19 | -1 | -4 | -3 |
| Chevron | Oct 5-Nov 5 | 5 | -16 | 0 | -2 | ||
| KO | Aug 1-Oct 1 | -4 | 16 | -3 | 4 | 3 | -4 |
| C | Aug 15-Oct 20 | 6 | 8 | 2 | 3 | -5 | -6 |
| DD | May 15-Jul 15 | 3 | 3 | 9 | 18 | 1 | -7 |
| Aug 5-Oct 25 | 8 | 8 | -3 | -8 | 10 | -7 | |
| F | Jul 15-Aug 15 | 11 | 2 | 9 | -2 | 5 | 1 |
| Oct 10-Dec 1 | -5 | -5 | -60 | -15 | -13 | -4 | |
| GE | Jul 15-Oct 25 | 12 | 8 | 9 | 1 | -1 | -4 |
| GM | May 1-Nov 15 | 15 | 9 | 46 | 16 | -17 | -16 |
| Hewlett | Jul 15-Oct 25 | 6 | 1 | 11 | -4 | ||
| IBM | Mar 15-Apr 15 | 0 | -1 | 19 | 5 | -3 | -3 |
| Aug 25-Oct 25 | -1 | 7 | 10 | 5 | -7 | -4 | |
| INTC | May 10-Jun 15 | 10 | 3 | 24 | 2 | -10 | -7 |
| MER | Mar 1-May 15 | -12 | -1 | 12 | 2 | -22 | -13 |
| Aug 15-Sep 30 | 23 | 13 | 7 | 12 | -3 | -1 | |
| MOT | Aug 25-Oct 25 | 9 | 7 | 34 | 5 | -29 | -4 |
| MU | Sep 30-Nov 15 | -51 | -10 | -12 | -11 | 5 | -5 |
| NXTL | Apr 5-May 20 | -53 | -14 | 2 | 2 | -7 | -5 |
| ORCL | Mar 15-Apr 15 | 3 | -1 | 11 | 5 | 2 | -3 |
| PFE | Jul 10-Sep 10 | 11 | 8 | 5 | 0 | 6 | -3 |
| PG | Jan 15-Mar 5 | 0 | 7 | -9 | -1 | 8 | 10 |
| PSFT | Mar 15-Apr 20 | -49 | -6 | 36 | 4 | 8 | -4 |
| QCOM | Nov 10-Dec 10 | -2 | -3 | -13 | -4 | -1 | -1 |
| SBC | Aug 1-Sep 1 | 10 | 7 | 12 | 0 | 5 | -5 |
| SUNW | Feb 25-Apr 15 | 22 | 7 | 3 | -1 | 1 | -6 |
| SWY | May 1-Jun 5 | 5 | -2 | 20 | 4 | -13 | -9 |
| Nov 10-Dec 10 | -4 | -3 | -19 | -4 | 1 | -1 | |
| Target (TGT) | Aug 1-Sep 1 | 9 | 7 | -3 | 0 | -7 | -5 |
| Texas Inst | Jun 1-Jul 1 | 8 | 2 | 15 | 7 | 15 | -2 |
| Sep 15-Oct 25 | -14 | -6 | 22 | -1 | -16 | -2 | |
| XRX | Aug 25-Oct 25 | 22 | 7 | 8 | 5 | -10 | -4 |
| Totals | 84 | 101 | 347 | 84 | -90 | -174 |
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