The Ghost Month is a period every year that most stock market traders dread. Well, from the term itself, it’s already scary enough. With more and more people getting interested in trading or investing in the stock market, more and more people fear the Ghost Month.
The Ghost Month is a Chinese belief that the dead would walk the earth. It’s believed that it’s not good to do any business during the Ghost Month because it will bring bad luck. Ghost Month usually starts in August and sometimes stretches up to September. In the stock market, a lot of people say that it’s not good to invest or trade in the stock market because the market will go down. Or will it really?
Since 2007, the average rate of return of the PSE index during August is1.08%. That’s not bad! Out of nine times, the PSE gained four times in August and dropped five times. The biggest drops were in 2013 and 2015 giving returns of -8.49% and -5.98% respectively.
In 2013, the US Fed announced that it will start tapering the monthly bond purchases that it was doing causing negative sentiment in markets all over the world. That was one of the major causes of the -8.49% drop in August 2013. Last year, oil prices were tumbling down causing global market instability which explains the -5.98% drop. Apparently, those big drops were caused by major global economic events and not merely because it was Ghost Month.
The market isn’t necessarily weak during Ghost Month. It would still follow the general trend unless there are some major catalysts that will influence it to move in either direction.
What drops during the Ghost Month though is the volume. Market activity and investor/trader participation is really low. If volume is low, it makes uptrends less sustainable. Lesser number of people engage in trading during the Ghost Month because those who believe in it steps aside and halts involvement in trading (because it is believed to be bad luck for business). Is the number of these people significant enough to really influence the market? Most likely not. The drop in trading activity may be more likely due to the fact that Ghost Month coincides with the vacation of foreign fund managers.
As somebody who doesn’t believe in Ghost Month, it is a great opportunity for me to accumulate shares in anticipation of a rally in the last quarter. Pick stocks that are on an uptrend and are consolidating. Pick stocks whose earnings for the past few quarters has been stellar. Pick stocks of companies that are growing. Summing it up, pick stocks of very promising companies. It’s a great time to accumulate because volatility is low.
As traders, most of our fears about the Ghost Month are baseless. As Marie Curie has said, “nothing in life is to be feared, only understood”. That’s very applicable in trading, especially in Ghost Month. Instead of letting our fears (that are based on rumors) get the best of us, understand what the Ghost Month is and why it is practiced. It will make the Ghost Month work in your favor.
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Article by Makoy Velasco, Certified Securities Representative
Any views or opinions represented in this blog are personal and belong solely to the columnist and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.