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EL Estée Luxury Seasonal

DEVELOPED BY

MICHAŁ ZAREMBA

average rating is 3.9 out of 5

Estée Lauder is synonymous with luxury, and the end of the year is truly a harvest time for this brand. Increased sales of exclusive cosmetic products, limited holiday editions, and additional funds in the hands of consumers drive demand for luxury brands. How can this seasonal trend be leveraged into a profitable investment strategy?

Inspirations


The Estée Lauder Companies is a global leader in the luxury cosmetics industry. The company's portfolio includes around 30 premium brands that are highly acclaimed worldwide.



Simultaneously, the company's shares on the stock exchange were in a downward trend from 12.2021 to 10.2024, experiencing a decline of up to 75%. According to analysts, the shares are significantly undervalued.



Will the seasonal pattern that has yielded an average of 8% over the past 28 years reverse the trend in the company's stock? Let's evaluate this together!


Possible reasons for a positive year-end for EL stocks.


Luxury products, including cosmetics, are often purchased as gifts. Many cosmetic brands, including Estée Lauder, release special, limited editions of their products during the holiday season. End-of-year marketing campaigns and increased spending on promotions drive sales during this period. The end of the year is also a time when consumers have additional funds, such as holiday bonuses or annual bonuses. This encourages them to spend more on luxury products. All these factors can contribute to better financial results for the company and a positive sentiment among investors.


Key Components


  • Exploration of the holiday season as a very favorable period for Estée Lauder stocks.

  • The strategy is based purely on dates. In the backtest, we completely ignore trends, news, company valuation, and the overall market situation.

Entry Rules


Entry occurs on October 25th or the next business day, with a market order at the end of the day.



Exit Rules


We are leaving on January 5th or next working day, no later than 55 working days from the moment of entry.





Backtest 1, Fixed $ Money Management


In this backtest, we consistently invest the same amount of $100k, testing over a period of 28 years (1995-2023).


Equity chart for this test:


Basic statistics and results month by month:


Backtest 2, % Money Management


In this backtest, we invest in a strategy with a constant 100% of the current capital (with a $100k initial capital). This causes the position value to change proportionally with the increase or decrease in capital. The rest of the parameters remain unchanged.


The equity chart for this test looks as follows:


Basic statistics resulting from the test:

The maximum drawdown was slightly over 9%, the open drawdown shown below the chart was about 31% in 2009. The annual profit from this investment lasting approximately 55 days was on avg. about 8%.


Additional Information on Strategy


SL & TP


The strategy does not use typical stop loss and take profit, although they can potentially be introduced. According to our tests, for most stock strategies, these settings worsen the results (read why).


Protection against the strong impact of a potential price change of a single stock on the entire portfolio is provided by diversification within the strategy portfolio. TIP - trade seasonal strategies only within a portfolio of multiple stocks and preferably also a portfolio of multiple strategies with different operating mechanics.


Market Regime


Despite its simple rules, the strategy performed well in various periods, both Bull and Bear Markets, although in our opinion, it is safest to use it during a Bull Market. You can read more about the market regime here.


Trading Costs


The backtests included trading costs and slippage typical for the given strategy, which occurred on a real account in our tests for the broker Alpaca. With a diversified stock portfolio and strategy, transaction costs can determine your profit or loss, so take the time to thoroughly test and choose a broker.


Robustness


Tests of other entry and exit days during this period yield stable similar results.


Due to its nature, a seasonal strategy will not have a large number of transactions; however, in this case, one can expect some evolution of the pattern in the coming years.


Recommended Instruments


The primary instrument is EL.


Pattern Day Trader


The strategy is also successfully applicable to smaller accounts. The holding period is approximately 55 days, which does not meet the PDT requirement.


Correlation with Other Strategies


The strategy aligns with consumer behavior trends related to the pre-holiday period. Therefore, it may be correlated with other trading strategies during this time.



Summary & Strengths and Weaknesses of the Strategy



The "EL Estée Luxury Seasonal" strategy is based on the seasonal increase in Estée Lauder's stock value from the end of October to the beginning of January. Back-tested over a 28-year history, it yields good profits, generating an average return of 8.12% over 55 days. The maximum drawdown was 9.29%, and the open drawdown reached 31% in 2009, which represents potential risk that should be considered in capital management. Capital exposure was 19.17%., suggesting good performance relative to risk. A strong point of the strategy is its high win rate at 78.5%, making it attractive to investors seeking predictable seasonal gains.


A weakness could be the high open drawdown in 2009, indicating significant volatility in certain periods. Due to its seasonal nature and limited number of transactions, this strategy should be part of a diversified portfolio where other strategies can balance potential risk.


It's important to remember that while seasonal patterns can be stronger than market trends, they can change over time, so regular evaluation and adjustment of the strategy are key to long-term success.






What you receive in the package for this strategy:

  • A .SQX file ready to be used on the Algocloud and StrategyQuant platforms.

  • Pseudocode describing all the rules in an easy-to-understand manner.


If you need the code for this strategy in the following formats: Tradestation (easylanguage), Multicharts, MT4, or MT5 (MQL), please contact us on this topic.


Disclaimer

 

The results obtained from historical data do not guarantee future outcomes. The effectiveness of a strategy can change over time. Backtesting is a tool that allows for the analysis and evaluation of an investment strategy based on historical data. Various factors, such as market changes or economic conditions, can influence the effectiveness of a strategy over time.

Investing always involves risk. This material is not investment advice. We share our experience and algorithms for educational purposes. We make efforts to ensure that our algorithms are error-free, but neither we nor the tools we use guarantee the absence of technical issues. Any decisions to use a particular strategy are made at your own risk and should be preceded by careful understanding and verification. You should always carefully consider your investment goals and risk tolerance before making investment decisions.

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