Seasonal Stock Market Trends E-Book

Jay Kaeppel

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Veröffentlichungsjahr: 2008

Beschreibung

There is a seasonal bias to the stock market, and by paying attention to the seasonal market tendencies you can gain an edge in the stock market over the long haul. Seasonality offers a practical approach to investing and trading. What better way to learn how to employ seasonal systems than learning from Jay Kaeppel, a master in the analysis of seasonal trends? Kaeppel walks you through this phenomenon that continues to work consistently, providing you with his ultimate seasonal index to make the calendar work for you. Stock Market Seasonals provides a never-before-seen definitive guide that illustrates how to utilize a combination of four basic seasonal tendencies in order to maximize returns.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Preface

CHAPTER 1 - Introduction to Seasonality in the Stock Market

THE CONCEPT OF SEASONS AND SEASONALITY

WHAT IS SEASONALITY?

THE PIONEERS OF STOCK MARKET SEASONALITY

MEASURING MARKET PERFORMANCE THROUGHOUT THIS BOOK

HOW TO TRADE THE DOW

SEASONAL TRENDS TO CONSIDER

SUMMING UP

CHAPTER 2 - The Month of January

THE FIRST FIVE DAYS OF JANUARY

THE LAST FIVE DAYS OF JANUARY

THE JANUARY BAROMETER

THE JANUARY BAROMETER AS A STAND-ALONE SYSTEM

THE JAYNEWARY BAROMETER

THE ULTIMATE JANUARY BAROMETER SYSTEM

THE EFFECT OF COMPOUNDING

A FEW WORDS OF WARNING

SUMMING UP

CHAPTER 3 - Holiday Seasonal Trends

THE HOLIDAYS

THE TRADING DAY BEFORE EACH HOLIDAY

TWO DAYS BEFORE EACH HOLIDAY

THREE DAYS BEFORE AND AFTER EACH HOLIDAY

THE BEST HOLIDAY TRADING DAYS

THE ULTIMATE HOLIDAY SYSTEM

THE MOST WONDERFUL WEEK OF THE YEAR (USUALLY)

SUMMING UP

CHAPTER 4 - Monthly Seasonal Trends

THE BEST DAY OF THE MONTH

THE TRADING DAYS OF THE MONTH

THE WORST TRADING DAYS OF THE MONTH

THE BEST TRADING DAYS OF THE MONTH (PART 1)

THE BEST TRADING DAYS OF THE MONTH (PART 2): THE MONTH-END/NEW-MONTH PATTERN

THE MOST WONDERFUL TIME OF THE YEAR

MONTHLY 10 COMBINED WITH THE SANTA CLAUS RALLY

THE ULTIMATE MONTHLY DAYS SYSTEM

ONE LAST TWEAK

SUMMING UP

CHAPTER 5 - Yearly Seasonal Trends

DECENNIAL PATTERNS (PART 1: RANKING THE YEARS)

DECENNIAL PATTERNS (PART 2: THE BEST AND WORST YEARS)

DECENNIAL PATTERNS (PART 3: THE DECENNIAL ROAD MAP)

DECENNIAL TENDENCIES

DECADE-BY-DECADE PERFORMANCE

INTRADECADE TRENDS OF NOTE

INTRADECADE CYCLES COMBINED

SUMMING UP

CHAPTER 6 - Repetitive Time Cycles of Note

THE 212-WEEK CYCLE

THE 40-WEEK CYCLE

THE 53-DAY CYCLE

COMBINING CYCLES

THE ULTIMATE TIME CYCLES MODEL

SUMMING UP

CHAPTER 7 - Election Cycle Investing

THE ELECTION CYCLE: BY THE YEARS

THE ELECTION CYCLE: BY THE MONTHS

TWO OTHER PATTERNS IN THE ELECTION CYCLE

THE ULTIMATE ELECTION CYCLE SYSTEM

SUMMING UP

CHAPTER 8 - Sell in May and Go Away

NOVEMBER TO MAY

WHAT IS MACD?

USING MACD AS A FILTER

OCTOBER THROUGH JUNE FOR THE NASDAQ

THE DEAD ZONES

THE EASIEST MARKET-BEATING STRATEGY IN THE WORLD

OCTOBER OF YEAR 7

SUMMING UP

CHAPTER 9 - Putting It All Together

BUILDING SEASONAL TRADING MODELS

BUILDING THE KTI

COMPARING EXTREME KTI READINGS

MODEL 1: THE LONG-ONLY METHOD

MODEL 2: THE LONG-ONLY PLUS LEVERAGE (LOPL) METHOD

MODEL 3: JAY’S ULTIMATE SEASONAL BAROMETER

SUMMING UP

Index

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Copyright © 2009 by Jay Kaeppel. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Kaeppel, Jay. Seasonal stock market trends : the definitive guide to calendar-based stock market trading / Jay Kaeppel. p. cm. Includes index.

eISBN : 978-0-470-48115-8

1. Stocks-Charts, diagrams, etc. 2. Investment analysis. 3. Investments. I. Title. HG4638.K34 2009 332.63’22-dc22 2008036344.

To Maggie, Jenny, and Jimmy

Preface

It was just about the dumbest thing I’d ever heard. And I remember it as plain as day. Like a lot of ideas that have come and gone over the years, I don’t even remember the source, sadly. But the message was simple—the stock market was soon to embark on a major bull market, rising to new all-time highs in the process. It was a preposterous notion.

The time was April 1982. For the previous 16 years, the Dow Jones Industrial Average had fluctuated in a wide range between 1,051 on the upside and 578 on the downside. The Dow had approached or exceeded the magical 1,000 level on five occasions, always to be turned back. There had also been a series of painful bear markets during this 16-year stretch. The bear market of 1966 ended with the Dow plunging 969 to 744, down 23 percent in a little more than nine months. The 1969-1970 bear market was a near replay, with the Dow shedding 36 percent from its bull market high. The 1973-1974 bear market was the worst since the Great Depression. From peak to valley, the Dow fell a staggering 45 percent, and the combination of high inflation and deflated stock prices—not to mention the Watergate scandal—took a powerful toll on investors’ psyches. Following a 75 percent advance from the December 1974 low to the September 1976 high, the Dow experienced another decline of 27 percent between September 1976 and February 1978. Over the next 38 months, the Dow again advanced back above 1,000, peaking at 1,024 in April 1981. And, as investors had come to expect, the rally failed to hold. By March 1982, the Dow was back under 800, 22 percent off of the April 1981 high.

So there I was, a neophyte in the market, learning the lessons of the market. The conventional wisdom at the time was pretty straightforward:

• The Dow trades in a range between roughly 600 and 1,050.

• Whenever it approaches 1,000, it is time to keep an eye on the exits, because the stock market always tops out when it nears that level.

• It is a given that the stock market declines during a post-presidential election year. Within the 16-year trading range, the Dow lost ground in 1969 (15 percent), 1973 (16 percent), 1977 (17 percent), and 1981 (9 percent). So looking ahead, it was pretty much a sure thing that 1985 would be a bad year for stocks.

• The good news of the day was that the stock market always makes a low every four years. The years of 1962, 1966, 1970, 1974, and 1978 had all witnessed a meaningful multiyear low.

So, sitting there in April 1982, with the Dow roughly 20 percent off of its April 1981 high, investors might have felt confident that a multiyear low was in the offing. Unfortunately, at the time, everyone knew that things were different this time around. Ronald Reagan had been in office a little more than a year, and despite the fact that he had promised to lower inflation and get the economy going, inflation and interest rates were still high (albeit declining), the economy was still struggling, and some of the leading stock market advisers of the day were extremely bearish. In fact, Joe Granville, who had called the 1981 top almost exactly—clearly a man with his finger on the pulse of the market—was forecasting another economic depression. So, when I stumbled upon a tidbit of cyclical stock market history, I almost had to laugh.

As I mentioned earlier, I don’t recall where I read it. But, wherever it came from, this piece pointed out that the stock market had staged strong rallies between the end of June of years ending in 2 and the end of December of years ending in 5—get this—every other decade. In other words, we were supposed to care that between June 1902 and December 1905, the Dow had rallied 50 percent and that, 20 years later, between June 1922 and December 1925, the Dow had rallied 69 percent. And, it was supposed to hold some historical significance that between June 1942 and December 1945, the Dow had advanced 87 percent and that, another 20 years later, the Dow had rallied 73 percent between June 1962 and December 1965.

In a nutshell, we were supposed to believe that what had happened in the stock market 20, 40, 60, and 80 years prior somehow mattered a hoot in the present day. What a hoot, indeed. And we were also to ignore the fact that this trend from June of years ending in 2 through December of years ending in 5 only worked every other decade. In other words, this pattern did not necessarily work from 1912 to 1915, from 1932 to 1935, from 1952 to 1955, and from 1972 to 1975. To put it mildly, I did not put much faith in this little nugget of stock market history, especially with a leading expert like Joe Granville predicting a depression. Nevertheless, because I was still learning the ropes in the stock market, I tried to keep track of as many market tools as possible. With a chuckle, I wrote, “Every 20 years between June of year 2 and December of year 5 indicator” into my log of stock market tools. Then I quickly turned my attention back to more useful tools, like economic and earnings forecasts.

On June 30, 1982, after the stock market closed, I wrote down the level of the Dow: 811.93. This was just 2 percent above its recent low of 796, achieved a few months earlier during March. By August 12, 1982, the Dow had drifted lower to 776.92, its lowest level in more than 28 months. With the weight of negative economic and market forecasts still hanging heavy, this new low appeared to be a strong confirmation that investors needed to brace themselves for a continuing stock market decline. Then something strange happened.

Over the subsequent two days, the Dow staged a respectable 2 percent gain. Then, on August 16, 1982, something inexplicable happened. The stock market rallied 4.9 percent, in one day. And from there, it never looked back. About a month later, the Dow stood 20 percent above its August low. Some investors leaped aboard the soaring rocket ship that the stock market had suddenly become. Most others stood by with their collective jaws on the floor, unable to pull the trigger in the face of a market reality completely at odds with the conventional wisdom, or such as it was just a month prior.

On June 30, 1982 (i.e., at the end of June of year 2 of an even-numbered decade), the Dow stood at 811.93. And 36 months later, on December 31, 1985 (i.e., at the end of December of year 5 of an even-numbered decade), the Dow stood at 1,546.67. This represented a gain of 99 percent in just two and a half years. By that time, a cyclical analyst had been born.

Over the past 25 years, I have examined in great detail a wide range of seasonal and cyclical trends as they relate to the stock market. Much of the best of what I have learned is contained in the following pages. The cycle marking June of year 2 through December of year 5 has been refined somewhat and appears in Chapter 5 as the cycle of October of year 2 through December of year 5. I have written in the past about some of the discoveries I have made. In many cases, those discoveries amount to things that other analysts have already learned and made public. Some of the pioneers of seasonal stock market analysis are noted in Chapter 1 and throughout the book as the ones who deserve credit for a particular finding. In Technical Analysis magazine, I have published articles such as, “The January Barometer: Myth or Reality” (discussed in Chapter 2), “The 40-Week Cycle in the Stock Market” (discussed in Chapter 6), and “The Stock Market, the Calendar, and You,” which incorporated a variety of seasonal trends into one comprehensive market-timing model.

Numerous studies have shown that the greatest influence on the price action of any given stock is the action of the overall stock market. A rising tide lifts all boats. In the stock market, it is a similar story. Whereas a bullish stock market in no way ensures that all stocks will participate, it is easier to make money in stocks when the overall market is rising than when it is falling. Likewise, it is often best to invest defensively, or perhaps even raise some cash, if the prospect for an overall decline in stock prices is great. The material presented throughout this book is designed to help investors weigh the likelihood of an overall stock market advance or decline during a particular time frame.

The most important thing that you can do in analyzing and considering the research presented in this book is to read with an open mind. As I described at the outset, the easiest thing to do is to laugh off ideas that seem to have no foundation in fundamental analysis, be they related to earnings and sales or supply and demand. What people think about what the stock market will do next and why has no real bearing on what the stock market ends up doing. The methods and tools presented herein provide a very useful road map for investors who seek to maximize their long-term profitability by using all tools at their disposal.

JAY KAEPPEL

CHAPTER 1

Introduction to Seasonality in the Stock Market

Within nature there exists an undeniable ebb and flow. The sun unfailingly rises in the east and then sets in the west. The moon revolves around the earth. The earth revolves around the sun. Trees grow leaves in the spring. The leaves turn bright colors in the fall and by winter they have fallen to the ground. The following spring the same routine starts anew. Most people go to bed at night and rise in the morning. What happens in nature affects humans, not only physically, but also emotionally and psychologically. Thunderstorms instill fear and a desire to seek shelter. A blizzard triggers an urge in people to hunker down and cocoon at home under a blanket. A dark, dreary day has an undeniable tendency to cause many people to experience—for lack of a better word—a funk, a state of mind in which virtually nothing feels right. But, ah, a warm, sunshine-filled day can all by itself suddenly make everything feel right. For millennia, the human race was a slave to the sun. And, to this day, people are drawn to bask in its glow. To better understand this phenomenon, picture opening the drapes first thing in the morning on a cloudless, sunny day following three days of dreary weather. Suddenly, almost magically, the darkest of moods seem to melt away.

So, what does any of this have to do with the stock market? The heart of the matter comes down to the fact that humans are a creature of habit and repetition, and that many, many things in life happen on a cyclical basis. And these cycles can greatly affect the way a person thinks or feels. Let’s first consider the concept of seasons.