November forex seasonals
November is an interesting month for seasonals because there are a few strong trends and some that often interrupted.
Cable is an interesting example. One the face of it, the 0.42% average decline over the past 20 years is unremarkable but when you strip out the past two US Presidential elections (2020 and 2016) there's a remarkable pattern of GBP weakness. It's the same with the dollar index overall as it struggled in both 2016 and 2020 but otherwise has risen in every year since 2010.
That speaks to the art of seasonal trading in a month that's notable for a few reasons.
1) The golden trend
I've written about this forever and it's come through countless times. There's a very strong seasonal trend of strength for gold in Dec/Jan. Recently, it's been preceded by weakness in November that's turned into a buying opportunity. Given the inflationary concerns in markets and sudden volatility in bonds, I don't see why this year should be any different. Look to buy a dip in mid-to-late November.
2) Stock market strength
One of the most well-known seasonals is that stocks everywhere tend to do well in November. Here are the 20-year averages in various indexes:
- MSCI world +1.71%
- S&P 500 +1.25%
- Nasdaq +2.81%
- Nikkei 225 +2.04%
Of those, I like Japanese stocks the best on a catch up trade. They're also riding a nine-year winning streak in November and the strength in Tokyo consistently runs through December. Though if you're long, you might want to hedge the FX exposure.
One exception (sorry UK traders) is the FTSE 100, which averages a 0.19% decline. Though I would also note that last November, the 12.33% gain was the best of any single month over the past 20 years.
3) Yen weakness
November is the worst month for the yen by far, more-than doubling the next worst month (Feb) over the past 20 years. Arguably, the trend started early this year with the yen taking a beating. By the same token, the trend in every yen cross is now decidedly higher and we've seen some late-month consolidation. The technicals, seasonals and fundamentals are nicely aligned in this trade (which of course means it will blow up in the other direction).
4) Last gasp for US natural gas
There's some minor seasonal strength in natural gas but I would be wary because it's also a volatile month. The Dec-Feb period is decidedly negative for gas so any further rise will be time to get out of the way. There was a huge gain in September but October was actually lower so some of the air is out already. Last week alone European benchmark gas prices fell 30%. My preferred strategy is to wait for the first blast of cold weather in New York and sell that pop. A long, cold winter could lead to a super-spike in prices this year but whether that happens is anyone's guess.
5) Oil weakness
G20 leaders and the US are badgering OPEC+ to do more to bring down prices. November is also the worst month for WTI crude. The OPEC meeting is on Thursday and adding more than 400Kbpd could certainly upend the sizzling run in crude and spark a retracement. Even without that, oil might be due for a pullback. But oil bulls don't despair, the Jan-April period is extremely strong.
6) CAD struggles
The oil trade was probably a clue. Not surprisingly, November is the worst month for the Canadian dollar. Friday's GDP report was surprisingly weak and the market is already pricing in four hikes in 2022. I'm a loonie bull but it hasn't been able to make headway on a hawkish BOC and 10-week rally in oil so maybe it's time to head to the sidelines.