GH
MA
TE
RI
AL
Typical January
Based on our market probability models January has a rather distinct typical trading pattern. The first trading day of the year starts slow and is frequently down before the effects of holiday revelry fully wear offbut the Dow has been up 10 of the last 15. It can be an opportune time to jump into the market, while traders are still groggy, ahead of a much stronger day two. Arguably one of the better trading days of the yearthe Dow has also been up 10 of the last 15, second trading days gain ground a large majority of the time with hefty gains as more sober traders turn over a new leaf of positivity and ramp-up buying in the New Year. Day one has improved recently, apparently in anticipation of day twos stellar record.
80
JANUARY
70 60 50 40 30
Market Probability Chart is a graphic representation of the S&P 500 Recent Market Probability Calendar Indicators and Patterns
20
Over the next several days markets fluctuate with a slightly bearish bias. Then equities come alive around the tenth trading day of the month as the first mid-month 401(k) cash infusion is injected into the market. Buying also swells ahead of, and after, the first three-day weekend of the year, Martin Luther King Jr. Day. The Dow has been up 6 of the last 8 first days of expiration weekthe day after MLK day is also an official bullish day. After this two-to-three day spurt stock prices sell off and meander until month-end. January expiration day has seen the Dow down five of the last six, but 2004 broke a 5-year losing streak. As January comes to a close stocks head higher with the last day of January being one of the strongest days of the year.
DJIA
ALMANAC INVESTOR
Indicators and Patterns Januarys First Five Days Early Warning System
Two early warning indicators surface the first several days of the month, the Santa Claus Rally and Januarys First Five Days. The seven-day Santa Claus Rally, which averages 1.6% for the S&P 500 since 1969, ends on the second trading day of January. This brief, reliable indicator is more significant in its absence. Times when this typical end-of-year bullishness has been missing have preceded bear markets or corrections. Januarys First Five Days can provide a preliminary gauge of the year to come especially when they are up. Since 1950, 35 up First Five Days on the S&P 500 were followed by 30 full-year gains for an 85.7% accuracy ratio and a 13.8% average gain in those 35 years. The five exceptions include flat 1994 and four related to war. Vietnam military spending delayed start of 1966 bear market. Ceasefire imminence early in 1973 raised stocks temporarily. Saddam Hussein turned 1990 into a bear. The war on terrorism, instability in the Middle East, and corporate malfeasance shaped 2002 into one of the worst years on record. The 20 down First Five Days were not indicativeup 10, down 10. In PostElection Years however, down First Five Days can be telling. Eight of the last thirteen times the S&P 500 posted a loss for Januarys First Five Dayssix of these eight were followed by full-year losses averaging -11.1%. Five Post-Election First Five Days showed gains and four years followed suit gaining 22.6% on average. In Midterm Election Years this indicator has had a spotty recordalmost a contrary indicator. In the last 14 Midterm Years only six full years followed the direction of the First Five Days and none did in the last seven. The full-month January Barometer (see below) has a better Midterm record of 64.3% accurate. Pre-Election years start with a stacked decknone have been down since 1939. Only two First Five Days were down (1955 and 1999). Both years posted S&P 500 gains of over 26%. Election Years have followed the direction of the First Five Days 12 of the last 14 times though the S&P 500 has been down only twice in Election Years since 1950.
ALMANAC INVESTOR
AS JANUARY BAROMETER GOES, SO GOES THE YEAR Market Performance In January Ranked By Performance
Previous Years Close 1950 16.76 1951 20.41 1952 23.77 1953 26.57 1954 24.81 1955 35.98 1956 45.48 1957 46.67 1958 39.99 1959 55.21 1960 59.89 1961 58.11 1962 71.55 1963 63.10 1964 75.02 1965 84.75 1966 92.43 1967 80.33 1968 96.47 1969 103.86 1970 92.06 1971 92.15 1972 102.09 1973 118.05 1974 97.55 1975 68.56 1976 90.19 1977 107.46 1978 95.10 1979 96.11 1980 107.94 1981 135.76 1982 122.55 1983 140.64 1984 164.93 1985 167.24 1986 211.28 1987 242.17 1988 247.08 1989 277.72 1990 353.40 1991 330.22 1992 417.09 1993 435.71 1994 466.45 1995 459.27 1996 615.93 1997 740.74 1998 970.43 1999 1229.23 2000 1469.25 2001 1320.28 2002 1148.08 2003 879.82 2004 1111.92 2005 1211.92 X = 5 major errors January Close 17.05 21.66 24.14 26.38 26.08 36.63 43.82 44.72 41.70 55.42 55.61 61.78 68.84 66.20 77.04 87.56 92.88 86.61 92.24 103.01 85.02 95.88 103.94 116.03 96.57 76.98 100.86 102.03 89.25 99.93 114.16 129.55 120.40 145.30 163.41 179.63 211.78 274.08 257.07 297.47 329.08 343.93 408.79 438.78 481.61 470.42 636.02 786.16 980.28 1279.64 1394.46 1366.01 1130.20 855.70 1131.13 1181.27 January Change 1.7% 6.1 1.6 0.7 5.1 1.8 3.6 4.2 4.3 0.4 7.1 6.3 3.8 4.9 2.7 3.3 0.5 7.8 4.4 0.8 7.6 4.0 1.8 1.7 1.0 12.3 11.8 5.1 6.2 4.0 5.8 4.6 1.8 3.3 0.9 7.4 0.2 13.2 4.0 7.1 6.9 4.2 2.0 0.7 3.3 2.4 3.3 6.1 1.0 4.1 5.1 3.5 1.6 2.7 1.7 2.5 Year Change 21.8% 16.5 11.8 6.6 45.0 26.4 2.6 14.3 38.1 8.5 3.0 23.1 11.8 18.9 13.0 9.1 13.1 X 20.1 7.7 X 11.4 0.1 10.8 15.6 17.4 29.7 31.5 19.1 11.5 1.1 12.3 25.8 9.7 14.8 X 17.3 1.4 26.3 14.6 2.0 12.4 27.3 6.6 26.3 4.5 7.1 1.5 34.1 20.3 31.0 26.7 19.5 10.1 13.0 X 23.4 26.4 X 9.0 ?? Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 1987 1975 1976 1967 1985 1989 1961 1997 1951 1980 1954 1963 1958 1991 1999 1971 1988 1979 2001 1965 1983 1996 1994 1964 1995 1972 1955 1950 2004 1952 1998 1993 1966 1959 1986 1953 1969 1984 1974 2002 1973 1982 1992 2005 2003 1956 1962 1957 1968 1981 1977 2000 1978 1990 1960 1970 January Year Change Change 13.2% 2.0% 12.3 31.5 11.8 19.1 7.8 20.1 7.4 26.3 7.1 27.3 6.3 23.1 6.1 31.0 6.1 16.5 5.8 25.8 5.1 45.0 4.9 18.9 4.3 38.1 4.2 26.3 4.1 19.5 4.0 10.8 4.0 12.4 4.0 12.3 3.5 13.0 X 3.3 9.1 3.3 17.3 3.3 20.3 3.3 1.5 flat 2.7 13.0 2.4 34.1 1.8 15.6 1.8 26.4 1.7 21.8 1.7 9.0 1.6 11.8 1.0 26.7 0.7 7.1 0.5 13.1 X 0.4 8.5 0.2 14.6 0.7 6.6 0.8 11.4 0.9 1.4 flat 1.0 29.7 1.6 23.4 1.7 17.4 1.8 14.8 X 2.0 4.5 flat 2.5 ?? 2.7 26.4 X 3.6 2.6 flat 3.8 11.8 4.2 14.3 4.4 7.7 X 4.6 9.7 5.1 11.5 5.1 10.1 6.2 1.1 flat 6.9 6.6 7.1 3.0 7.6 0.1 flat Based on S&P 500
the only loss in 2003 due to exogenous events ahead of the military action in Iraq. Ten of the last 14 Election years have followed Januarys course.
3.3 7.8 0.8 4.0 1.7 12.3 5.1 4.0 4.6 3.3 7.4 13.2 7.1 4.1 0.7 2.4 6.1 4.1 3.5 2.7 2.5
9.1 20.1 11.4 10.8 17.4 31.5 11.5 12.3 9.7 17.3 26.3 2.0 27.3 26.3 7.1 34.1 31.0 19.5 13.0 26.4 ??
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999
2005?
ALMANAC INVESTOR
The January Barometer in subsequent odd-numbered years had compiled a perfect record until two January interest rate cuts and 9/11 affected 2001 and the anticipation of military action in Iraq held the market down in January 2003. January is compared to prior New Congress Barometers below.
Almanac Investor Platform subscribers are emailed the official final results of the January Barometer after the close at the end of every January.
New Congress Barometers Prior to 1933 "Lame Duck" Amendment (Odd Years)
NEWLY ELECTED PRESIDENT INAUGURATED MARCH 4TH
March % Change 5.2% 0.7 1.0 -2.7 7.8
12 month's % change includes March
Opposite
*Panic of 1903 ends 11/9 as Congress convenes (off 37.7%) 12 month's % change includes November
NEW CONGRESS CONVENES IN APRIL OR MAY EARLIER THAN USUAL, NO CHANGE IN PRESIDENCY
Month's % Change 0.5% -2.3 13.6 12 Month's % Change 6.0% -19.6 0.7 Same 1911 1917 1919** Opposite
** Wilson in Europe 6 months; Post-Armistice surge (up 30.9% Feb to May) 12 month's % change includes applicable month Tables based on Dow Jones industrial average (1901-1933)
Prior to the Twentieth Amendment in the last century, we had a March Barometer when newly-elected presidents (Taft, Wilson, Harding, Hoover, and Roosevelt) were inaugurated on March 4. Newly elected Congresses convened in March for the occasion. Score 5 out of 5 for the March Barometer prior to the Twentieth Amendment. Between 1900 and 1933, eight new Congresses convened on the first Monday in December (13 months after the election). But because of annual year-end reinvestment, it would be misleading to use December as a barometer. We used a November Barometer instead and the score was almost perfect. In 1903, the only time Congress actually convened in November, the barometer was in error. The Panic of 1903 took the Dow down 37.7% and the new Congress was called in one month earlier, ostensibly to stem the tide. The Panic ended on November 9, the day Congress convened, but the month remained negative while the market moved up over the next 11 months. Three other new Congresses were convened in other months for different reasonsApril in 1911 and 1917 and May in 1919. The record is a double bulls-eye for the April Barometer. As for the one-shot May Barometer a post-Armistice 30.9% surge in four months (February to May) took May up 13.6% but the 12-month period (including May) almost lost it all. President Wilson spent six months in Europe trying to win the peace. This New Congress Barometer performed rather impressively until the passage of the Twentieth Amendment. Since then its successor, the January Barometer has compiled the best record in odd-numbered years of all other known indicators.
JB versus All
Over the years there has been much debate regarding the efficacy of our January Barometer. Skeptics never relent and we dont rest on our laurels. Disbelievers in the January Barometer continue to point to the fact that we include Januarys S&P 500 change in the full-year results and that detracts from the January Barometers predicative power for the rest of the year. Others attempt to discredit the January Barometer by going further back in time. A certain diligent newsletter watchdog, who does impeccable and thorough research, tested the January Barometer back to 1897. While we respect and appreciate the depth of the research, it fully misses the point and the basis for the January Barometer. (Hosts of others have gone down the same dead end street.) Almanac Investors know there would be no January Barometer without the passage of the twentieth Lame Duck Amendment to the constitution in 1933. After the Lame Duck Amendment was ratified in 1934 it took a few years for the Democrats heavy congressional margins to even out and for the impact of this tectonic governing shift to take effect. Hence our January Barometer starts in 1938. In light of all this debate and skepticism we have compared the January Barometer results along with the full year results, the following 11 months results, and the subsequent 12 months results to all other Monthly Barometers using the Dow Jones Industrials, the S&P 500, and the NASDAQ Composite. Heres what we found going back to 1938. There were only six major errors. In addition to the five major errors mentioned above, in 1946 the market dropped sharply after the Employment Act was passed by Congress, overriding Trumans veto,
10
ALMANAC INVESTOR
and Congress authorized $12 billion for the Marshall Plan. Including these six errors, the accuracy ratio is 91.0% for the 67-year period. Including the 7 flat years the ratio is 80.6%still effective. For the benefit of the skeptics, the accuracy ratio calculated on the performance of the following 11 months is still solid. Including all errors major and flat yearsthe ratio is still a respectable 73.1%. Now for the even better news: In the 43 up Januarys there were only three major errors for a 93.0% accuracy ratio. These years went on to post 16.6% average full-year gains and 12.1% February-to-December gains. Now lets compare the January Barometer to all other Monthly Barometers. For the accompanying table we went back to 1938 for the S&P 500 and the Dowthe year in which the January Barometer came to lifeand back to 1971 for NASDAQ when that index took its current form. The accuracy ratios listed are based on whether or not the given months moveup or downwas followed by a move in the same direction for the whole period. For example, in the 67 years of data for the S&P 500 for the January Barometer, 54 years moved in the same direction for 80.6% accuracy. (Maybe Steinbrenner can find a hitter that bats .806.) The Calendar Year ratio is based on the months percent change and the whole years percent change; i.e., we compare December 2003s percent change to the change for 2003 as a whole. By contrast, the 11-month ratio compares the months move to the move of the following eleven months. Februarys change is compared to the change from March to January. The 12-month change compares the months change to the following
Indicators and Patterns
twelve months. Februarys change is compared to the change from March to the next February. Though the January Barometer is based on the S&P 500 we thought it would clear the air to look at the other two major averages as well. You can see for yourself in the following table that no other month comes close to January in forecasting prowess. There are a few interesting anomalies to point out though. On a calendar year basis the Dow in January is one notch above the S&P. For NASDAQ April sticks out as well on a calendar year basis, but that is after four months have passed. Besides, you want to know how the year might pan out following January, not April. And no other month has any basis for being a barometer. January is loaded with reasons. Being the first month of the year it is the time when people readjust their portfolios, rethink their outlook for the coming year and try to make a fresh start. There is also an increase in cash that flows into the market in January, making market direction even more important. Then there is all the information Wall Street has to digest: The State of the Union Address, FOMC meetings, fourth-quarter GDP, earnings, and the plethora of other economic and market data. Well continue to delve deeper into the January Barometer (and other indicators) but for now we are content that its results will refute any representations to the contrary.
12
ALMANAC INVESTOR
8-Apr 17.2% 1.5% 5.5 cont. bear 10-Jun 25.4 12.2 15.3 cont. bear 29-Dec 16.9 13.7 17.9 cont. bear 14-Feb 5.8 3.5 0.7 FLAT 14-Sep 13.9 6.0 6.6 bear 28-May 0.9 6.5 2.6 FLAT 22-Oct 12.8 10.6 14.3 bear 25-Oct 6.0 4.5 3.0 bear 26-Jun 24.0 8.3 11.8 bear 5-Mar 4.9 12.6 7.7 cont. bear 17-Dec 13.4 10.6 11.4 bear 26-May 18.6 8.4 0.1 cont. bear 5-Dec 20.6 15.9 17.4 bear 3-Oct 35.5 29.0 29.7 bear 2-Nov 11.1 6.8 11.5 bear 6-Mar 2.6 7.7 1.1 cont. bear 25-Sep 13.0 5.4 9.7 bear 12-Aug 14.9 16.8 14.8 cont. bear 24-Jul 9.5 2.3 1.4 FLAT 11-Oct 10.2 0.4 6.6 bear 8-Apr 3.5 6.6 4.5 FLAT 20-Dec 9.3 5.3 10.1 bear 9-Oct 31.3 22.2 23.4 cont. bear 11-Mar 6.4 29.9 26.4 cont. bear 20-Apr 3.7 At Presstime - not in totals or average Totals 325.9% 45.3% 136.3% Average 13.6% 1.9% 5.7%
13
Typical February
After Januarys usually strong finish, February opens cautiously for large cap stocks perhaps in tribute to the Romans who named the month after their monthlong feast of Februalia which they celebrated in the spring as their new year. It was a time period when sacrifices were made to atone for sins. Day one trades up about half of the time with a slight gain, followed by a second day that advances more often than not yet averages a minor net loss. Over the last ten years Februarys first trading day has improved dramaticallyoff only twice on the S&P, averaging 0.46%. This runs with the pattern in recent years of first-tradingday-of-the-month-strength. Strength builds mildly over the third day but fades
FEBRUARY
80 70 60 50 40 30
Market Probability Chart above is a graphic representation of the S&P 500 Recent Market Probability Calendar
14
20
ALMANAC INVESTOR
after that until the stronger eighth and eleventh trading days. The second half of the month struggles until the last day. NASDAQ stocks are much more solid the first five days of the month and small cap Russell 2000 stocks are robust all month long. Monday of option expiration week is dramatically bullish with the S&P 500 up twelve in a row.
0.1 3.4 0.3 3.4 Best & Worst February % Change % Change % Change % Change % Change Best 1986 8.8 1986 7.1 2000 19.2 1986 7.2 2000 16.4 Worst 2000 7.4 2001 9.2 2001 22.4 2001 9.5 1999 8.2 Best & Worst February Weeks Best 2/22/74 4.4 2/8/91 4.8 2/4/00 9.2 2/8/91 4.6 2/1/91 6.6 Worst 2/11/00 4.9 2/23/01 4.3 2/9/01 7.1 2/23/01 4.4 2/10/84 4.6 Best & Worst February Days Best 2/24/84 2.7 2/22/99 2.7 2/11/99 4.2 2/22/99 2.6 2/29/00 3.6 Worst 2/18/00 2.8 2/18/00 3.0 2/16/01 5.0 2/18/00 2.9 2/16/93 3.3 First Trading Day of Expiration Week 1990-2005 Record (#Up - #Down) 12-4 13-3 9-7 13-3 11-5 Current streak D1 U12 U6 U12 U6 Avg % Change 0.5 0.4 0.2 0.4 0.2 Options Expiration Day 1990-2005 Record (#Up - #Down) 7-9 6-10 6-10 6-10 6-10 Current streak U1 U12 D2 U12 D2 Avg % Change 0.2 0.3 0.6 0.3 0.2 Options Expiration Week 1990-2005 Record (#Up - #Down) 8-8 6-10 6-10 5-11 8-8 Current streak D2 D2 D2 D2 D2 Avg % Change 0.2 0.2 0.4 0.2 0.00 Week After Options Expiration 1990-2005 Record (#Up - #Down) 6-10 7-9 9-7 7-9 9-7 Current streak U1 U2 U1 U2 U2 Avg % Change 0.5 0.3 0.3 0.3 0.1 2006 Bullish Days based on data from 1984 to 2004 10, 15 3, 10, 15, 28 1, 2, 3, 6,14 1, 3, 10, 15, 28 1, 2, 3, 6, 7, 8, 10 15, 28 14,15,23,24,27,28 2006 Bearish Days based on data from 1984 to 2004 6, 8, 16, 17 6, 16, 17, 21, 23 16 6, 16, 17, 23 16, 21
Dow & S&P 1950-July 2005, NASDAQ 1971-July 2005, Russell 1K & 2K 1979-July 2005.Options data 1990 through August 2005. Bullish/Bearish days based on index rising or falling 60% of the time on a particular trading day 1984-2004 (see pages 66-73).
15
Indicators and Patterns Market Negative Before & After Presidents Day
Presidents Day is the lone holiday that exhibits weakness the day before and after. Trading has turned more negative over the last sixteen years. The Friday before this mid-winter three-day break is exceptionally bad, whereas the Tuesday after is not as brutal and has shown some improvement recently. The accompanying table illustrates Fridays bearish bent.
Close
2596.85 2932.18 3224.73 3309.49 3911.66 3963.97 5458.53 7067.46 8398.50 9297.03 10304.84 10730.88 9745.14 8041.15 10714.88 10611.20
-0.40% 4 12 -0.58% 3 9
-0.21% 8 8 0.10% 8 4
Do note that the two silver-lining years, 1991 and 2003, were both related to military action in the Persian Gulf. In 1991 the month-long punishing air war waged by coalition forces to liberate Kuwait from Saddams August 1990 invasion began to impact Iraqi forces. On February 15, 1991, the Friday before Presidents Day, Iraqs offer to pull out of Kuwait for the first time tied to lifting sanctions was rejected by President Bush as cruel hoax. The following Tuesday after the holiday, General Schwartzkopf said Iraqi forces were on the verge of collapse. These two clear signs of capitulation were celebrated on Wall Street with buying. In February 2003 the Dow had dropped 13.2% from the previous November high as the anticipation of another fray into Iraq loomed over the world. As the invasion of Iraq became imminent the market rallied the day before and after Presidents Day before falling to its final 2003 low the week before the March 19 offensive.
16
ALMANAC INVESTOR
Close
327.99 369.39 407.38 433.91 471.46 482.74 640.65 816.29 1022.76 1241.87 1352.17 1278.94 1083.34 851.17 1156.99 1184.16
-0.57% 3 13 -0.74% 2 10
-0.29% 9 7 0.03% 8 4
NASDAQ Composite
2 Days Before Year Close
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 429.61 444.31 639.10 695.88 790.24 793.31 1090.54 1370.81 1714.34 2405.55 4548.92 2552.91 1843.37 1277.44 2073.61 2061.34
Close
423.83 450.32 626.41 665.39 791.15 784.62 1083.24 1365.79 1703.43 2313.87 4382.12 2318.35 1750.61 1346.54 2080.35 2030.32
Average Since 1990 Up Down Average Since 1994 Up Down Indicators and Patterns
-0.87% 3 13 -1.13% 2 10
-0.81% 4 12 -0.58% 3 9
17
80 70 60 50 40 30
MARCH
Market Probability Chart above is a graphic representation of the S&P 500 Recent Market Probability Calendar
18
20
ALMANAC INVESTOR
Typical March
First days have been weaker for big cap stocks, up about half the time. NASDAQ stocks and small cap Russell 2000 stocks are much stronger in the beginning of March. By the sixth or seventh trading day things cool off until mid-month as the first Triple Witching of the year and 401k cash inflows tend to push stocks higher. After the Ides has past, market gains become scarce until the third to last day of the month. Like the beginning of the month, small stocks and techs perform best the last day with the Russell 2000 up 82% of the time while the Dow Jones Industrials are down much of the time. This is reminiscent of the end of the second quarter when big caps lose ground and small stocks shine.
DJIA
19
Indicators and Patterns Luck of the Irish Hits Wall Street Day Before St. Pats
Saint Patricks Day is Marchs sole recurring cultural event. Sure Good Friday and Easter land in the vernal month from time to time, but only ten times in the last 53 years. Islams New Year often falls in March as does the Jewish celebration ST. PATRICKS DAY TRADING RECORD (DAYS BEFORE AND AFTER)
St. Pats % Change % Change S&P 500 St. Pats % Change % Change Year Day 2 Days Prior 1 Day Prior Day or Next * St. Pats Day * Day After 1953 Tue 0.19% 0.15% 26.33 0.42% 0.34% 1954 Wed 0.45 0.04 26.62 0.23 0.41 1955 Thu 2.15 0.76 36.12 0.39 0.17 1956 Sat 0.97 0.31 48.59 0.93 0.58 1957 Sun 0.07 0.05 43.85 0.45 0.43 1958 Mon 0.12 0.31 42.04 0.69 0.36 1959 Tue 0.12 1.08 56.52 0.82 0.23 1960 Thu 0.77 0.55 54.96 0.15 0.09 1961 Fri 0.30 1.01 64.60 0.61 0.40 1962 Sat 0.21 0.17 70.85 0.13 0.27 1963 Sun 0.47 0.50 65.61 0.49 0.21 1964 Tue 0.08 0.00 79.32 0.23 0.08 1965 Wed 0.03 0.13 87.02 0.13 0.24 1966 Thu 0.57 0.58 88.17 0.35 0.41 1967 Fri 0.95 1.01 90.25 0.18 0.06 1968 Sun 1.90 0.88 89.59 0.55 0.67 1969 Mon 0.67 0.40 98.25 0.26 0.24 1970 Tue 0.53 1.08 87.29 0.44 0.29 1971 Wed 1.14 0.50 101.12 0.09 0.07 1972 Fri 0.13 0.23 107.92 0.39 0.31 1973 Sat 0.75 0.51 112.17 1.21 0.20 1974 Sun 0.09 0.37 98.05 1.24 0.84 1975 Mon 0.18 1.22 86.01 1.47 1.02 1976 Wed 1.05 1.12 100.86 0.06 0.41 1977 Thu 0.55 0.19 102.08 0.09 0.22 1978 Fri 0.26 0.44 90.20 0.77 0.69 1979 Sat 0.15 0.83 101.06 0.37 0.55 1980 Mon 1.17 0.18 102.26 3.01 1.80 1981 Tue 0.06 1.18 133.92 0.56 0.22 1982 Wed 0.77 0.16 109.08 0.18 1.12 1983 Thu 0.35 1.03 149.59 0.14 0.21 1984 Sat 0.41 1.18 157.78 0.94 0.68 1985 Sun 0.20 0.74 176.88 0.20 1.50 1986 Mon 0.28 1.44 234.67 0.79 0.47 1987 Tue 0.46 0.57 292.47 1.47 0.11 1988 Thu 0.09 0.95 271.22 0.96 0.04 1989 Fri 0.52 0.93 292.69 2.25 0.95 1990 Sat 0.36 1.14 343.53 0.47 0.57 1991 Sun 0.29 0.02 372.11 0.40 1.48 1992 Tue 0.48 0.14 409.58 0.78 0.10 1993 Wed 0.36 0.01 448.31 0.68 0.80 1994 Thu 0.08 0.52 470.90 0.32 0.04 1995 Fri 0.20 0.72 495.52 0.02 0.13 1996 Sun 0.36 0.09 652.65 1.75 0.15 1997 Mon 1.83 0.46 795.71 0.32 0.76 1998 Tue 0.12 1.00 1080.45 0.11 0.47 1999 Wed 0.98 0.07 1297.82 0.66 1.44 2000 Fri 2.43 4.76 1464.47 0.41 0.54 2001 Sat 0.59 1.96 1170.81 1.76 2.41 2002 Sun 0.09 1.14 1165.55 0.05 0.41 2003 Mon 3.45 0.16 862.79 3.54 0.42 2004 Wed 1.43 0.56 1123.75 1.17 0.13 2005 Thu 0.75 0.81 1190.21 0.18 0.05 Average 0.11% 0.31% 0.14% 0.01% *When St. Patricks Day falls on Saturday or Sunday, the following trading day is used. Based on S&P 500. 20
ALMANAC INVESTOR
of Purim. But Saint Patricks Day occurs on the same day every year in March. There is no official stock market closing or bank holiday but the festivities do hit close to Wall Street. Parades are held worldwide but the largest runs right up the center of Manhattan. Gains the day before Saint Patricks Day have proved to be to be greater than the day itself and the day after. Perhaps its the anticipation of the patron saints holiday that boosts the market and the distraction from the parade down Fifth Avenue may cause equity markets to languish. Or is it the absent, and then hungover, traders that hold the market back? Or maybe its the fact that Saint Pats usually falls in Triple-Witching Week. Whatever the case, since 1953, the S&P 500 posts a wee gain of 0.14% on Saint Patricks Day, an almost nonexistent gain of 0.01% the day after, but the day before averages a cheerful 0.31% advance.
21
80 70
APRIL
60 50 40 30
Market Probability Chart above is a graphic representation of the S&P 500 Recent Market Probability Calendar
22
20
ALMANAC INVESTOR
Typical April
Over the past 23 years, since the big market-turnaround year of 1982, April has experienced a fair share of volatility throughout the month. Sizeable one-day gains and losses have been quite commonplace. Aprils first several days are strongest for the Dow Jones Industrials and mid-month strength exists for stocks of all varieties. After the mid-month Tax Deadline the market has been prone to weakness, but the last several days of the month exhibit more NADSAQ and Russell 2000 strength.
DJIA
23
24
ALMANAC INVESTOR
Year
0.9 4.0 7.8 4.8 2.2 0.6 8.3 2.0 0.2 0.7 2.2 1.6 3.9 2.0 8.2 5.0 0.7 1.5 1.0 0.9 2.4 7.2 1.6 1.6 2.9 0.7 16.6 9.4 1.8 3.2 7.6 4.2 5.2 5.0 9.2 0.4 2.1 3.5 10.9 13.0 11.7 1.0 1.0 4.2 6.0 1.8 9.6 12.7 10.9 5.8 3.0 0.9 1.2 4.3 8.3 13.5 0.2 2.5 5.2 2.5 6.4 7.3 3.8 7.8 0.2 0.5 1.6 7.9 5.8 3.8 2.6 1.5 4.4 3.7 9.0 6.2 9.4 6.1 0.5 0.1 4.5 6.0 4.8 3.3 4.0 11.9 5.4 5.1 5.3 11.0 5.1 0.5 0.2 0.4 1.1 0.1 16.3 4.9 0.7 0.5 8.6 0.9 1.1 4.0 10.2 4.7 11.4 5.3 3.7 6.0 8.0 5.7 0.9 15.1 1.8 8.9 22.9 11.2 3.9 1.2 1.5 3.6 2.2 1.8 1.2 0.2 3.5 4.6 1.3 5.7 1.7 2.0 3.0 2.5 0.4 6.0 0.8 1.4 2.0 4.1 4.9 9.7 2.1 8.0 6.6 2.6 3.0 11.8 0.1 17.4 29.7 9.7 6.6 10.1 23.4 10.5 17.4 1.4 6.6 10.1 23.4 26.2 1.5 2.4 8.5 2.4 1.1 1.5 0.1 0.7 6.9 2.7 3.7 6.5 7.4 3.9 2.5 0.9 0.7 5.5 5.1 1.5 1.9 4.1 4.2 7.4 10.0 6.6 0.8 1.1 7.3 5.0 0.5 6.7 3.6 6.2 5.0 12.4 4.5 0.04 1.9 0.7 1.0 0.3 0.4 3.0 10.6 2.0 2.9 10.1 5.1 14.0 4.3 4.8 5.1 5.9 0.2 3.1 0.4 5.6 3.5 1.6 2.9 3.6 6.2 3.8 9.3 10.8 4.8 16.6 9.2 4.3 6.2 16.8
Jan
Feb
Mar
DOWN JANUARYS + DOWN APRILS = TROUBLE Apr May Jun Jul Aug Sep Oct Dow Jones Industrials Monthly % Change Nov Dec Year's % Change
April-Dec % Change
2.2 2.4 2.0 14.0 7.7 12.3 0.9 0.5 16.1 2.2 0.8 3.5 6.9 3.3 13.0 8.8 24.1 7.7 0.2 9.1 18.3 4.9 14.5 0.04 11.0 36.0 20.9 16.5
1953 1960 1962 1970 1973 1981 1990 2000 2002 2005 Average
0.7 8.4 4.3 7.0 2.1 1.7 5.9 4.8 1.0 2.7 4.0
1.9 1.2 1.1 4.5 4.4 2.9 1.4 7.4 1.9 2.6
1.5 2.1 0.2 1.0 0.4 3.0 3.0 7.8 2.9 2.4
1.8 2.4 5.9 6.3 3.1 0.6 1.9 1.7 4.4 3.0 3.1
1953 1956 1960 1962 1970 1973 1974 1981 1990 2000 2002 2005 Average
0.7 3.6 7.1 3.8 7.6 1.7 1.0 4.6 6.9 5.1 1.6 2.5 4.0
1.8 3.5 0.9 1.6 5.3 3.7 0.4 1.3 0.9 2.0 2.1 1.9
2.4 6.9 1.4 0.6 0.1 0.1 2.3 3.6 2.4 9.7 3.7 1.9
2.6 0.2 1.8 6.2 9.0 4.1 3.9 2.3 2.7 3.1 6.1 2.0 3.8
25
MAY
60 50 40 30
Market Probability Chart above is a graphic representation of the S&P 500 Recent Market Probability Calendar
26
20
ALMANAC INVESTOR
Typical May
The first two days of May trade higher frequently and the Dow Jones Industrials have been up six of the last seven first trading days. NASDAQ and the Russell 2000 continue to be strong into day three and throughout the month. A bout of weakness often appears the fourth, fifth, and seventeenth trading days for large cap stocks but the middle of the month tends to be rather strong. NASDAQ and the Russell 2000 take the lead again the last three days of May.
DJIA
27
5.84 0.07 5.27 2.35 5.79 2.10 0.17 2.51 3.73 3.66 12.24 4.57 16.16 5.86 0.45 29.74 54.74 74.68 18.22 49.57 44.95 22.56 24.91 1.23 9.68 53.19 37.50 150.71 36.52 227.89 33.77 122.68 179.97 14.20 75.07
10.13 18 17
14.34 9.86 36.88 14.48 0.39 11.33 13.40 15.85 15.07 3.25 20.03 14.56 3.10 17.25 13.44 53.42 48.37 114.86 24.06 80.05 113.59 10.11 17.71 15.08 75.39 119.68 14.87 214.49 240.10 495.52 14.96 179.01 248.88 54.37 81.58
27.23 21 14
28
ALMANAC INVESTOR
Typical June
Junes first trading day is the Dows best day of the month, up fifteen of the last twenty-one years. Strength picks up day two for the broader market with NASDAQ leading the charge. Gains are sparse throughout the remainder of the month until the last two days when semi-annual Russell index reshuffling pushes
80 70
JUNE
60 50 40 30
Market Probability Chart above is a graphic representation of the S&P 500 Recent Market Probability Calendar Indicators and Patterns
20
29
NASDAQ and Russell 2000 stocks highest. The last day of the second quarter is a bit of a paradox as portfolio pumping has driven the Dow down eleven of the last fifteen while buoying the NASDAQ and Russell 2000 higher twelve of the last fifteen years.
8, 19
Dow & S&P 1950-July 2005, NASDAQ 1971-July 2005, Russell 1K & 2K 1979-July 2005. Options data 1990 through August 2005. Bullish/Bearish days based on index rising or falling 60% of the time on a particular trading day 1984-2004 (see pages 66-73).
30
ALMANAC INVESTOR
31
32
June Close
4th Last June 3rd Last June 8th July Trading Day Trading Day Trading Day
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
296.20 405.51 424.67 394.66 435.29 462.29 475.92 563.60 703.95 705.96 933.45 1185.02 1442.07 1894.74 2686.12 3966.11 2160.54 1463.21 1622.80 2047.79 2056.96
1985 Average 1987 Average 2.4% 2.6% 2.8% 3.2% 2.0% 2.2% 2.5% 2.8%
292.30 402.22 427.20 389.00 448.55 455.38 473.30 548.20 694.81 702.68 919.56 1172.58 1446.24 1863.25 2552.65 3858.96 2064.62 1423.99 1602.66 2025.47 2045.20
293.40 402.87 426.68 391.67 444.90 456.89 473.08 547.84 702.84 702.05 920.52 1153.29 1436.38 1869.53 2602.44 3940.34 2074.74 1429.33 1634.01 2019.82 2069.89
300.52 391.55 426.53 393.56 447.89 467.17 488.37 570.22 708.47 719.35 994.15 1106.36 1502.62 1965.53 2778.23 4174.86 2075.74 1374.43 1733.93 1931.66 2144.11
302.39 384.80 431.14 394.67 448.90 468.44 492.71 575.21 712.49 721.56 999.33 1103.49 1523.88 1968.41 2818.13 4246.18 2084.79 1373.50 1754.82 1914.88 2152.82
301.29 371.37 434.93 387.33 453.84 438.24 502.04 580.83 704.70 722.16 1001.21 1080.59 1593.81 1872.39 2638.49 3766.99 2027.13 1328.26 1735.02 1887.36 2184.83
2.8% 2.7 0.2 1.2 0.1 2.6 3.2 4.0 2.0 2.4 8.1 5.6 3.9 5.5 8.8 8.2 0.5 3.5 8.2 4.6 4.8
3.5% 4.3 0.9 1.5 0.1 2.9 4.1 4.9 2.5 2.7 8.7 5.9 5.4 5.6 10.4 10.0 1.0 3.5 9.5 5.5 5.3
2.4% 2.8 0.0 0.5 0.7 2.2 3.2 4.1 0.8 2.5 8.0 4.1 4.6 5.1 6.8 6.0 0.0 3.8 6.1 4.4 3.6
3.1% 4.5 1.0 0.8 0.9 2.5 4.1 5.0 1.4 2.8 8.6 4.3 6.1 5.3 8.3 7.8 0.5 3.9 7.4 5.2 4.0
1.7% 8.4 2.4 1.9 4.3 5.2 5.5 3.1 0.1 2.3 7.3 8.8 10.5 1.2 1.8 5.0 6.2 9.2 6.9 7.8 6.2
0.2% 0.1%
ALMANAC INVESTOR
JUL Y
60 50 40 30
Market Probability Chart above is a graphic representation of the S&P 500 Recent Market Probability Calendar Indicators and Patterns
20
33
Option expiration in July is generally characterized by flat trading. Monday before expiration has been mixed the last six years, with the Dow down 3 straight then up the last 3. On expiration Friday however, the Dow has been down 4 of the last 6. The week after expiration is one of the worst of the year.
Typical July
The month opens strong with the Dow Jones Industrials, S&P 500 and Russell 1000 up fourteen of the last seventeen first trading days. Day three is weak fol-
DJIA
34
ALMANAC INVESTOR
lowed by strength until options expiration. The third week of July, frequently the week after options expiration, is Julys major trouble spot.
Indicators and Patterns Hot July Markets Often Precede Fourth Quarter Buying Opportunities
One of the many interesting seasonal patterns we have tracked over the years in the Stock Traders Almanac and our newsletters concerns July gains of 3.5% or more on the Dow that occurred since 1950. The accompanying table illustrates that whenever bulls stampeded in July, investors were likely to be given an opportunity to purchase stocks cheaper sometime later in the fall. Three times subsequent second half lows were reached rather quickly after hot July markets. The August 1954 low followed the bear market of 1953, when the market bottomed in September 1953 and went straight up until April 1956. August 1958s low followed the 1957 bear market, when the new bull market picked up steam in April 1958. A quick low came in August 1970 as the 1969/1970 bear market ended in May 1970. All other occasions brought better buying opportunities in the ninety days between mid-September and mid-December.
122.4% 7.7%
35
80
AUGUST
70 60 50 40 30
Market Probability Chart above is a graphic representation of the S&P 500 Recent Market Probability Calendar
36
20
ALMANAC INVESTOR
Typical August
The first nine trading days of the month have exhibited weakness while midmonth is strongest. The end of August tends to get whacked as traders evacuate Wall Street for the summer finale. The last five days have suffered in six of the last nine years with the Dow up only once the next to last day in ten years. In the last nine years, the last five days of August have averaged losses of: Dow Jones Industrials, 2.9%; S&P 500, 2.7%; and NASDAQ, 2.4%.
DJIA
37