By: Tom Gentile
on August 17th, 2021
History tends to repeat. This is not surprising given that we humans are creatures of habit. This is true with world events. It is true in the stock market. This universal law has been the basis of my success as a rules-based systems trader. I have developed many systems that scour historic data and find patterns that repeat. These systems produce trades that historically produce profits 90% or more of the time. That’s all the edge that I need to consistently produce profits into the future.
One of my systems is called “The Money Calendar”. It’s a powerful scanner that scours up to 20 years of data and reveals stocks that consistently move up or down during a particular timeframe of the year. These historic patterns tend to repeat into the future.
Labor Day is coming up in just over two weeks on September 6th.
Historically, Americans tend to travel and buy discretionary items like grills, clothes, and Kentucky Fried Chicken. We know that and it produces seasonal patterns in the stock market.
There are many historical trends this behavior produces with stocks, but one area that is most consistent is Airlines. Many people tend to wrap up their summers with vacations over the 3-day Labor Day weekend.
This historic trend is clearly visible in the following 3 major airline stocks.
International airline, American Airlines (NYSE: AAL) has a very compelling pattern around Labor Day. Over the past 10-years, AAL has risen a whopping 8.3% the 10-trading days prior to Labor Day to 7-days after. 90% of the trades were winners.
Drilling down into 10-year performance, you can see that in 2020 and 2019, AAL has risen 10.93% and 13.57% respectively.
The sole loser over this 10-year period was -2.59% in 2014.
United Airlines (NYSE: UAL), also has a compelling pattern around Labor Day. Over the past 10 years, UAL has risen an average 8.98% 10-trading days before to 8-trading days after Labor Day. 90% of the trades were winners.
Last year, UAL rose 13.9% over this period.
Domestic airline, Southwest Airlines (NYSE: LUV) rises an average of 7.26% the 10-trading days before Labor Day to 9-trading days after with an accuracy of 90%.
Over the past two years, LUV has risen 17.71% and 13.34%.
Trading these historic patterns is simple.
Buy the stock the number of trading days before Labor Day shown in the scan results and exit the shown number of trading days after.
Now, if you want to greatly increase your ROI and reduce the cost of entering the trade, use options.
Here are some basic rules of thumb:
- Buy Call Option
- Use First Expiration After Trade End Date
- Use ATM Option Strike (Strike Closest to Stock Price)
For example, AAL shows an entry 10-trading days before Labor Day and an exit of 7-trading days after.
With Labor Day on September 6th, our entry date would be August 23, 2021. Our exit date would be September 15th.
On September 6th, buy an ATM call with an expiration date of September 17th, the first expiration after the end date of September 15th.
Sell the call option by market close on September 15th.