Steve Moore Looks for Historically Reliable Seasonal Patterns

By Allen Sykora

Steve Moore has found computer-based technical analysis of seasonal patterns helps him anticipate future price movement.

He trades the futures markets and runs the Moore Research Center from his ranch near Eugene, Ore. The center has done technical research for several of the major futures exchanges, has an Internet site with weekly commentary and thousands of charts, and puts out a monthly hard-copy report that is also available through the Internet.

Moore and his colleagues test thousands of windows of time for all of the main futures contracts, looking for historically reliable seasonal patterns.

"We'll start on Day 1 and test through Day 14, looking for all trades that have been 80% or more accurate over the last 15 years," he said.

Then researchers will test that two-week time span plus one day. Then they'll test two weeks plus two days. Then two weeks plus three days. This will continue until they have completed a two-month window.

"Then we walk that strategy forward one day, and do the same thing again, and test another 75 days, or windows," said Moore. "Then we walk it forward another day, until we get out to the end of the contract. We're literally testing thousands of different windows, or combinations, that have been available for a trade.

"From that, we may end up with potentially 200 different trades with different windows. We then sort that number down until we ultimately end up with one trade...that had 80% or better reliability and a reasonable profit."

Researchers use this process on all of the major futures contracts, to ultimately come up with 15 potential trades. Then they do the same on the spreads.

Moore uses these seasonal patterns as a basis for his trading, but also incorporates correlation studies which the center publishes. For these, said Moore, computer analysis may go back as far as 50 years, searching for those years that correlate most closely with the market in the current year.

"We may have a seasonal trade published that has worked 80% of the time, but this could be one of the 20% years," said Moore. "That's where the correlation study will come in as kind of a filter."

The center's purpose is to provide research that can assist others in their trading, explained Moore.

"Say you want to buy soybeans, but you know there is nothing but seasonal moves down in April into late May," he said. "So you take that knowledge as you're trading and maybe you only buy weak pullbacks in that time window, instead of buying strength, because you know there is a strong history of the market moving down."

Moore is more confident about seasonal trades when he senses the majority of the market participants believe the seasonal strategy won't work.

"Forget about the fact that everybody thinks a market should go down," he said. "If there is a seasonal buy coming that has worked 85% of the time over the last 15 years, the fact that everybody thinks it is going to do the opposite actually makes me believe the odds are even higher that it's going to work."

Moore relies on technical analysis rather than fundamentals. He feels that once most market participants know about a fundamental outlook, these fundamentals are probably already factored into prices.

He recalled watching an oil analyst on television in early 1999 when oil was just over $10 a barrel. The analyst was talking about weakness in Asian economies at a time when oil inventories were at record high levels. This analysts' firm expected oil to fall below $10, with little chance of a rally for the rest of the year.

"It had traded at $10.15 the day he was saying this, and the market went straight up," said Moore. Over the next several months, crude prices gained roughly $15 a barrel to their highs in late September.

"His fundamentals might have been right, but they were already in the price," said Moore.

But using his study of seasonal patterns, Moore went long in crude futures and was able to benefit as the market moved higher.

Moore also pointed to what he sees as inconsistency in fundamental analysis.

"One year fundamental analysts will build you an argument that the market should do X," he said. "The following year, they'll go out and grab totally different fundamental tools and build you another fundamental argument. So the problem I have with the fundamentalists is they are not consistent in the tools that they use to build their fundamental approach."

The one time that Moore may use fundamentals, however, are when he suspects they are not already fully factored into the price and his technical analysis points in the same direction as the fundamentals. "Those trades are usually really, really good," he said.

Moore's work in the futures industry began in the 1970s during a prior career in the wood-products industry. After college, he became a traffic manager in shipping at a production facility in Oregon, then went to work in purchasing and distribution for a Georgia-Pacific operation in Portland. He later joined a wholesale firm called Wood Markets that was bought in 1975 by Merrill Lynch.

"It was one of their ventures into hedging, because there was such enormous basis profits to be made," explained Moore. "I was lucky enough at that time to be at a company that was throwing a lot of money into the business. So I got involved in computers way back in 1975, when they were (little more than) desk-top programmable calculators."

Moore helped develop some regression analysis, which is normally not used for futures markets but can be useful when forecasting cash prices. He became involved with futures as well, and in 1978 set up a futures department at a forest-products company where his father was a partner.

In 1985, Moore joined Stotler & Co., opening a computer research facility and brokerage office at his Oregon ranch. He spent much of his time trading and writing computer models for different ways to trade. Stotler & Co. was later liquidated in 1989, leaving Moore out of a job.

"So I kept my people and started Moore Research Center," said Moore. "I still have the main people I had back then."

Moore Research Center has done custom research for the Chicago Mercantile Exchange, Kansas City Board of Trade and Chicago Board of Trade, which the exchanges can in turn provide to members and customers. The research center's web site at www.mrci.com has approximately 27,000 files, mostly charts but with some tables, going back to the 1960s, along with weekly commentary.

The center's monthly report lists 15 hypothetical trades and up to 15 hypothetical spreads based on historical reliability. The web site provides an update on these each night.

In recent years, the center has also teamed with well-known trader/money manager Linda Bradford Raschke to eletronically transmit her market commentary, as well as the charts she uses.

Moore's enthusiasm for the markets showed during this interview, conducted one afternoon after most futures markets were closed but stocks were still trading. He kept one eye on a price monitor while answering questions.

"Microsoft is suddenly down 2 1/4, making new lows," he exclaimed between questions. At another point, he observed that the Dow Jones Industrial Average had gone from around 30 points lower to 20 higher since the interview began.

Moore enjoys working with computers so much that he lists programming as one of his hobbies. "I guess some people would call that work, but I call it play," he said.

Two of his favorite activities are golf and tennis. In fact, on his Oregon ranch, he has put in a golf hole and putting green, as well as a grass tennis court.

The key to success is "lots and lots of hard work," said Moore. "You've got to be willing to put time and energy into it. A lot of people think just because they have a lot of money, they can make a lot of money in futures. It just doesn't work that way. It's too highly leveraged."

Traders should do research before establishing their positions, and not rely solely on advice from brokers, he continued. Often when a broker tells a client why a market should rise or fall, the market has already done so, related Moore.

"I think you've got to research your trade because you've got to make your own decision on where to get in or get out," said Moore. "You can't be relying on other people to make those decisions for you if you're going to be successful over the long term."

He feels novice traders are making a mistake when they make a trade, then start calling around for advice on what to do when the market goes against them. Instead, he said, they should probably get out of the trade.

"You've lost on that trade when you get to the point where you no longer feel you know what it's doing," he said. "Don't put that trade on unless you know why you're putting it on, you know what it should do, and you know where you're going to get out if it doesn't work."

His biggest piece of advice for novice traders is to be careful not to trade too heavily too fast.

"The biggest problem I've always seen is people trade too large for the money they're risking," he said. "Therefore, they can't really afford to lose on more than a couple of trades before they hurting badly.

"As Linda Bradford Raschke says, 'Stay small. Don't try to trade big until you've built up the account.'"

While he likes trading crude oil, Moore said he generally shies away from the New York futures markets because of the way locals there sometimes make a run to trigger stops. Some of his favorite markets are meats, grains, bonds and S&P futures. He likes volatility.

Moore does take advantage of the after-hours electronic trading that has grown in recent years, both to capture profits and to take out new positions.

"Sometimes I find if you have a nice profit and don't take it, they'll take it from you," he said. "So you've got to take it when they give it to you."

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