Seasonality is the study of how assets move during a certain time year. It can highlight long-term tendencies, such as whether an exchange-traded fund (ETF) or commodity tends to rise or fall with some constancy in a particular month. The ETFs discussed below have a tendency to rise or fall significantly in July. We also find that, over the past several years, July has been one of the most volatile months of the year for these ETFs. That can mean big opportunity ... and risk.
The United States Natural Gas Fund (UNG) has historically struggled in July. Over the past four years, the price has never appreciated (closed the month higher than it opened) in July and has lost 5.8% on average. Over the past 10 years, the price has moved higher in July only 20% of the time (down 80% of the time), and the average loss is still 5.8%. Even when the price rallied in 2016, natural gas struggled during July and August. For a longer-term perspective, in the past 19 years, natural gas futures have fallen in July 68% of the time, losing 2.9% on average. In 2017, UNG has been in a downtrend, but it recently bounced off support near $6.50. While the price may bounce in the short term, seasonality favors a re-test of that support area. (See also: Weak Natural Gas Supply Reverses Bear Trend.)
The iPath Bloomberg Sugar ETN (SGG) has fallen every July for the past three years, losing on average 9.7%. That definitely seems bearish, but it is a recent phenomenon. Reviewing the results over four or more years, the outlook for July begins to look better. Over the past nine years, the price has actually risen in July 67% of the time and gained 2.9% on average. (Regarding the big down years recently, there were some even bigger up years previously.) Sugar futures contracts, for which we have more historical data, have risen 68% of the time over the past 19 years, gaining 4.8% on average. The Sugar ETN is in a downtrend right now, and it has been falling aggressively since March. Technically, $25 to $24 to is a possible support area to watch, as that is where SGG bottomed in 2015. (For more, see: Sugar: A Sweet Deal for Investors.)
The Teucrium Corn ETF (CORN) has also had a rough time in July recently. In the past four years, it has fallen every July, with average declines of 8.9%. The futures contract provides a longer historical precedent, since the ETF has only been around for eight years. Over the past 19 years, corn futures have risen only 32% of the time in July, losing 3.4% on average. The ETF has been ranging since mid-2016, and at the start of June, the price fell from the top of the range. The ETF currently trades near $18.50, which could be a support area based on the range. If selling continues, which history favors, the next decline could take the price below the August 2016 low of $17.68. (See also: Investing Seasonally in the Corn Market.)
The Bottom Line
Seasonality is best used in conjunction with other technical or fundamental criteria. Seasonality only shows us what happened in the past and doesn't necessarily indicate what will happen this July. UNG has a strong bearish bias in July. SGG shows a long-term historical tendency to rally in July, but in recent years, the ETF has been slammed lower. CORN also tends to struggle in July. However, it is important to consider other factors, such as entries, stop-losses and targets, before trading these ETFs based on seasonality, and to risk only a small percentage of account capital on any single trade. (For related reading, check out: July's Tough, but These Stocks Tend to Do Well.)
Charts courtesy of StockCharts.com. Disclosure: The author does not have positions in the ETFs or commodities mentioned.