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MRCI's Futures Highlight - Swiss Franc(CME) MRCI's Seasonal Pattern and Bull/Bear Charts

MRCI's Seasonal Pattern & Bull/Bear Charts

Those who cannot remember the past are condemned to repeat it.
--- Santayana, The Life of Reason.

In the predictability of human psychology lies both a reflection of and a responsibility for that truth. Futures prices move most dramatically when anticipating --- and adjust equally as dramatically upon realizing --- fundamental change, a phenomenon intrinsic to the seasonal approach.

Seasonal Principles

The approach itself is hardly new, and it need not be limited to markets directly influenced by weather. Cash market and futures traders have long used the technique to take advantage of annually repeating price movement. Seasonal analysis originates from the following premise: Each market has fundamental forces peculiar to it and that act upon it every year. If there exists empirical evidence for patterns of market reaction to such forces, then seasonality can be more broadly defined as a market tendency to repeat similar price movement annually. As such, it is an analytical principle valid for any market.

A seasonal pattern evolves in any market from consistent price responses to annually recurring conditions --- not only weather but, in other cases, fiscal calendars, commercial buying/selling schedules, tax liabilities, quarterly Treasury refundings, or even futures contract specifications (delivery, expiration). In any given year, then, such forces may affect a market to a greater or lesser degree and cause it to react in a more or less timely manner.

Daily Seasonal Patterns

Thus, every market, both cash and futures, develops a seasonal pattern peculiar unto itself. MRCI computes each contract's daily seasonal pattern, uniquely derived from and a composite of daily futures price activity during designated years. Rather than simply average prices on each calendar day, MRCI averages the position of prices within their contract ranges to better emphasize historical behavior. The patterns ultimately plotted illustrate well-defined market tendencies for tops, bottoms, and trends from which to better anticipate future price movement and judge current market activity.

Contract Specificity

In futures, one not only trades a market but enters into a specific contract. Each contract tends to have a distinctive seasonal pattern due to peculiarities related to that contract's expiration date, such as delivery expectations, cash considerations, and designation as old or new crop.

These relevant considerations may distinguish the typical behavior of one contract versus another. For instance, one contract more than another may often hold greater potential from the long side, may typically begin its seasonal rise earlier or sustain it longer, or normally be subject to more hedging pressure.

Bull/Bear Patterns

Of course, market behavior does not always coincide with its seasonal pattern; markets are dynamic, patterns an evolutionary composite. Macro-economic forces ensure bull and bear trends, which may offer the greatest trading opportunities but which exhibit behavior diametrically opposed one to the other. Therefore, dissecting seasonal behavior into two even more distinct patterns, one bullish and one bearish, provides yet another perspective from which to discover emerging trends and to understand what behavior to anticipate --- and when.

Further behavioral study can examine both bullish and bearish market patterns. To be included in either composite, a contract year must meet a strict mathematical definition: Using linear regression the absolute value of the slope of the line best describing its closing-price scatterplot must exceed a predetermined level. Years with a neutral bias are reflected in a third series, the purpose being to isolate bullish and bearish patterns of behavior. The nature of these patterns themselves may then be further examined for such things as specific time periods critical to a breakout or trend definition. The goal of Bull/Bear patterns are to provide potential insight into when bull years may be strongest and bear years may be weakest, Additionally, potential periods where bull years are weak, or bear years are strong may also come to light.

The Seasonal Pattern Charts

Each chart consists of up to three time aspects of a market's seasonal pattern --- up to the most recent 30-year pattern (magenta line), the most recent 15-year (black line) and its most recent 5-year (red line). Thus, any evolution in the pattern may be perceived as well as trends, tops, and bottoms coincident to both. The numerical index to the right (or left) measures the historical tendency for the market to make a seasonal high (100) or low (0) at a given time during the year. There is no further significance to this value.

Besides illustrating the more obvious seasonal tops, seasonal bottoms, and seasonal trends, these patterns also suggest certain cause/effect phenomena which may present secondary opportunities. For instance, do smaller but well-defined breaks/rallies typically coincide with certain events, such as Thanksgiving or first deliveries against a lead contract? If so, does there exist an implied opportunity?

The Bull/Bear Charts

The bull/bear chart can be made visible by clicking the "BB" in the upper left hand corner of the chart below. Each bull/bear chart consists of three composite patterns A solid green line representing the bull years, a solid red line representing the bear years, and a solid grey line representing the neutral years. Each pattern's component contract years are listed in the legend below the chart. Contract years are not listed chronologically but rather in order of their degree of bullishness, as determined by the inclination/declination of the line best describing the scatterplot (linear regression) of each. The most bullish (as defined by comparing slopes) of the bull years is listed first; the most bearish of the bear years is listed last.

Notice that neither bull nor bear pattern reaches either 0 or 100. When MRCI constructs a 15-year pattern, the averaged raw percentage values for each calendar day typically lie between 35 and 65 and are only then blown out to between 0 and 100 to reflect greatest tendency. That step is not taken when constructing these bull/bear patterns. Thus, each can better represent the extent and vigor of typical bull or bear moves.

The table below provides additional capability to evaluate the individual market years which made up the composite patterns in the seasonal pattern and bull/bear charts. Holding the mouse still over the hyperlink specifying the year will result in the chart of the final (up to) 12 months for that year to be displayed. If the flash chart hides a portion of the image, then scroll the page until you can see the entire image. Additionally, clicking on the hyperlink for the market year will load a new page which will provide viewing of up to the last 24 (36 in some cases) months of trading. This chart will also allow technical studies to be added to the chart for technical analysis.

Seasonal Pattern Chart Years:
the solid magenta line represents the pattern of the most recent 30 years (1991-2020)
  Years: 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
the solid black line represents the pattern of the most recent 15 years (2006-2020)
  Years: 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
the solid red line represents the pattern of the most recent 5 years (2016-2020)
  Years: 2020 2019 2018 2017 2016
Bull/Bear Chart Years:
the solid green up-trending line represents the 24 year bull pattern - from most-least bullish
  Bull Years: 2003 2004 1971 2011 1977 1965 2008 1964 1996 1981 1984 1973 1994 1979 1975 1988 1970 1972 2013 1967 1961 1974 2010 1989
the solid red down-trending line represents the 22 year bear pattern - from least-most bearish
  Bear Years: 1976 2000 2012 2009 1992 1987 2001 2016 2015 1993 1978 1999 1969 1995 1968 1983 1985 1986 2019 2005 1982 1990
the solid gray line represents the 14 neutral years
  Neutral Years: 2014 2017 2007 1963 1966 2006 1998 2018 1962 2020 2002 1980 1997 1991




Let MRCI introduce you to our Futures Highlight!

The focus on a single market each month can provide you more in-depth knowledge of how it trades. What if you knew such things as ...
(1) average daily ranges by day of week
(2)  how often it tends to close higher/lower by day of week
(3)  how often it tends to gap up/down
(4)  historical summary of daily % of price change

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