According to Zeal its the season Pic!

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As characteristic of any index, the CDNX (acronym for the former Canadian Venture Exchange, which traders still use to label this index) trades on a real-time basis with a daily closing price.And by tracking this close over time traders are able to view the overall directional tendencies of the junior resource-stock sector.Even more appealing is there is over 8 years of price history, which allows us to dissect the CDNX for longer-term analytical purposes.

There are many ways we can slice and dice this CDNX data, but one of the most fascinating is a complex technical read on seasonality.Seasonality is thetendency for a price to behave in a certain manner over the course of a calendar year.This metric is virtually never the primary driver of a price, but more of a tailwind that has peripheral influence.

In order for seasonality to be a viable metric, we must consider sample size and where we are within a secular cycle.Seasonality won’t work if we only have say 2 or 3 years to pull from, as it would be difficult to filter out random noise.It also won’t work as well if the data series crosses over a structural shift.Since prices behave differently across bulls and bears, it is usually not fruitful to compare price activity across two different secular market cycles.

Well with 8 full years of price history that happens to span nearly the entire secular commodities bull, CDNX seasonality is a well-established metric that traders shouldn’t overlook.Even though chaos and disorder are thoughts often at the forefronts of our minds when contemplating juniors, the chart below shows that these stocks exhibit very distinct seasonal behavior.

Underlying this chart is an intricate spreadsheet with thousands of formulas.But the methodology and resulting dataset is quite clean and simple.For each calendar year, 2002 to 2009, the daily CDNX price is indexed to the first day of that year at 100. As the CDNX moves, its price is converted into an index number that reflects its rolling gains or losses off that starting number of 100.This is repeated each calendar year, with the individual years averaged to form the blue line you see below.

This fascinating chart reveals the CDNX’s seasonal tendencies over the course of its secular bull.And right away we can see there are overtly weaker and stronger times of the year.From the beginning, at the outset of the average calendar year, the CDNX is in rally mode.And this impressive winter rallying caps off the strongest season for junior resource stocks.

But this rally that tends to run to the end of March is not one that begins in January, rather closer to the official seasonal commencement in mid-December.In fact, nearly half the gains (7.2%) of the average winter rally are realized over just the last few weeks of the calendar year.

It is important to realize that with 8 years of data, it is not simply one or two big Decembers responsible for this initial winter push higher.Though not every year in the last 8 has been up, junior speculators seem to consistently be buying around this time of year.To better comprehend this consistency I looked at the CDNX’s last 15 trading days of each year, from 2002 to 2009, to make sure there were no big outliers juicing the data.Indeed, every single year returned gains over these last 15 days.Perhaps there is something to this seasonality thing!

By the time the average winter rally runs its course, about 3.5 months, the CDNX has run 14.7% higher.But when April rolls around the fun usually comes to a halt.For the remainder of the spring the CDNX tends to grind sideways, and by summertime it can’t fight the despondency any longer.

Coming out of this sideways grind the CDNX enters into its weakest season of the year, the summer doldrums. And as you can see in this chart, the old adage “sell in May and go away” definitely applies to junior resource stocks.Summer is usually the seasonally-weakest time of the year across the entire financial markets.With professional traders and retail investors alike going on vacation and losing interest in the markets, volume and volatility tails off, which typically portends a retreat.

At Zeal we do extensive research on these summer doldrums in order to get an edge on timing our newsletter trades.And this summer malaise permeates the markets of many of the commodities we follow.Gold for instance is a major commodity that is notorious for slipping into a summer season of weakness.And this is especially important for the CDNX since gold juniors are probably the largest group in the entire TSX-V.

These CDNX summer doldrums tend to last through about mid-August, carving out a tight downtrend that usually wipes the gains from the first part of the year.But just when junior traders are ready to capitulate and lose all enthusiasm for these speculative plays, one of the CDNX’s best seasonal buying opportunities emerges.