Trader’s Narrative

Here is a chart plotting every single major rally in the Dow Jones Industrial index since 1900:

Source: Chart of the Day

While the Dow has surpassed its highs from last month, this has not been confirmed by other major indexes. In any case, there have been 27 significant rallies in the past 109 years of market history - not counting the current one. That’s about one for every 4 years. Paul Desmond of Lowry Research pointed out this four year cycle as one of his reasons for believing this to be a real bull market.

About three quarters of the rallies resulted in a gain of 30%-150%, lasting 200-800 trading days (9.5 months to 3.2 years). These are the data points highlighted in the blue shaded box above. The current rally is just shy of making it as it is too short in duration.

No, there is no free lunch. But for my US readers, there is a free trading magazine subscription in their future.. For a limited time, you can get a complimentary subscription to SFO magazine (Stocks, Futures, and Options).

It takes less than a minute to sign up and you need to provide some basic information. But as I mentioned, you need to be a resident of the US (because you need to provide a US address). Enjoy!

If you want to totally ignore September, I don’t blame you. Historically, that has been the smart thing to do:

Source: Alan Newman’s Cross Currents

The famous Wall St. adage: “Sell in May and go away!” suggests that you buy at the start of November and sell at the end of May. There is nothing magical about November, nor May.

But following the advice means that you avoid both the summer doldrums and the dangerous months of September and October (where many crashes have concentrated) and concentrate on the performance packed time of year straddling the arrival of the new year.

September is such a bad month that there is only one decade (1911-1921) in which its average performance was in the top half of the months!

It is still a mystery why September has delivered such poor performance. Equally mystifying is why the months from November to April provide the best performance.

Market Timing
The timing of the market is important mostly to investors and swing-traders. But even if you are a short term trader, it is useful to know the underlying current of the market at different times of the year.

If you’re interested in market cycles, here is more information on the four year cycle and the ten year cycle (with graphs).

Unless you’ve been hiding under a rock, you know 2008 is an election year in the US. Will it be Hillary? Obama? Romney? Huckabee? When it comes to the stock market, it may not matter. Just the fact that this is an election year should put a smile on your face.

Like the 4 year cycle, an election year is a powerful cyclical pattern in the market:

So far this year, we’ve stumbled out of the gate. OK, more like tripped on our laces and landed square on our collective noses. But according to the election year seasonality, that’s in line with other years.

In fact, we could be in for more pain all the way to the summer. But as we get closer to November 4th, 2008, the market should pick up steam. Or rather, more accurately put, it has performed better in the past.

So even though we can’t count on the boost of the four year cycle this year, we have this to look forward to. It almost makes it worthwhile to sit through all those political TV ads, doesn’t it?