Salient to Investors:

Jeffrey Hirsch at the Stock Trader’s Almanac writes:

Three main seasonal and cyclical patterns have stood the test of time: the 4-year Presidential Election/Stock Market Cycle, the Best 6 Months Switching Strategy and January’s basket of indicators and trading strategies. Caveat. History never repeats itself exactly.

1. The 4-year Presidential Election/Stock Market Cycle:

  • Wars, recessions and bear markets tend to start or occur in the first half of the presidential term, and prosperous times and bull markets in the second half.
  • The third year in the presidential term has the best performance – there have been no Dow losses in pre-election years since 1939.
  • Presidents tend to take their more painful initiatives in the first half of their term and prime the pump in the second half.
  • Most bear markets began in post-presidential years – 1929, 1937, 1957, 1969, 1973, 1977 and 1981 – as also major wars – the Civil War (1861), WWI (1917), WWII (1941) and Vietnam (1965). Only in 1925, 1989, 1993 and 1997 were Americans blessed with peace and prosperity in the post-election year.
  • Practically all bear markets began and ended in the two years after presidential elections.
  • From the midterm low to the pre-election year high, the Dow has gained nearly 50% on average since 1914.

2. The Best 6 Months strategy is basically the flip side of the old “sell in May and go away” adage.

  • Institutional investors’ efforts to boost their returns help drive the market higher in Q4, as does holiday shopping and year-end bonus money.
  • September is the worst month of the year on average as back-to-school, back-to-work and end-of-Q3 portfolio window dressing causes stocks to sell off.

3. The January Effect

  • In late October, small stocks wake up and in mid-December take off and hold their lead through the beginning of May.
  •  NYSE stocks selling at their lows on December 15 will usually outperform the market by February 15 in the following year.
  • The Santa Claus Rally is the propensity for the S&P 500 to rally during the last 5 trading days of December and the first 2 of January by an average of 1.5% since 1950.
  • The January Barometer has registered only 7 major errors since 1950 for an 88.9% accuracy ratio – of the 7, Vietnam affected 1966 and 1968.
  • Every down January in the S&P 500 since 1938 has preceded a new or extended bear market, a 10% correction, or a flat year. The last 40 up First 5 Days produced a 13.6% average full year gain, and were followed by full-year gains 34 times.

Since 1950, all 3 indicators have been positive 27 times and full-year gains followed 25 times. All three indicators are positive in 2013.

Read the full article at

Click hereto receive free and immediate email alerts of the latest forecasts.

Using Seasonal and Cyclical Stock Market Patterns