Historical Stock Market Trends- The Best Six Month Period

I’m a big fan of historical stock market trends, and you will be hard pressed to find a publication that does a better job at documenting them then the Stock Trader’s Almanac.  I’ve been reading the Stock Trader’s Almanac for about 10 years, and every year I seem to learn something new.  It is a fantastic reference manual when writing out your weekly trading plan.  One of the more famous studies done by the Stock Trader’s Almanac is identifying the best six month period of out-performance by the stock market.

One of the most common stock market trends uttered on the street every April is “sell in May and go away”.  The Stock Trader’s Almanac proves out through thorough historical stock market trends analysis that just by following this simple mantra, one can exponentially increase their buy and hold performance.

Taking statistics from the 2009 Stock Trader’s Almanac, their research has shown that investing in the Dow Jones Industrial Average on May 1st (or the first tradable day in the month) and closing out the position on October 31st (or the last tradable day in the month)would have resulted in an average gain of .6% from 1950 through 2007. During those 57 years, 35 of them would have been up, and 23 would have been down. They further show that a $10,000 investment would have grown to $11,021 if you had reinvested gains.  It does not say if dividends were used in the calculation of these returns.

Making the investment in the Dow Jones Industrial Average on November 1st (or the first tradable day in the month) and closing it out on April 30th(or the last tradable day in the month) would have resulted in an average gain of 7.6% per year from 1950 through 2007. During those 57 years, 45 would have been up and 13 would have been down.  A $10,000 investment that was compounded would have grown to $531,444.  Once again, I have no idea if dividends were used in these calculations.

Keep in mind that nothing is stated as to when during the session the purchases and sales were made, which could have some effect on returns, and transaction costs are not taken into consideration. During the “other” six month period (relative tot he one being analyzed), it says that a switch is made into fixed income.  Once again, there is no note about performance of the fixed income instruments being used. I’m also taking the Almanac’s word for it regarding this research, and given the amount of copies of the Almanac that has been sold, there’s no reason to think they are being made up or that the publishers are disingenuous. If either were the case, the popularity of the publication would be non existent, and the publishers would have been called out as frauds a long time ago.   If you would like to read the results that I am quoting for yourself, they are on page 48 of the 2009 edition of the Stock Trader’s Almanac.   The updated statistics are in the more recent volume.

Now, you might wonder: this sounds great for investors, but I’m a trader.  How can this assist me? Why would this information be useful for traders? Mainly, it’s important to know what other traders, investors, and even hobbyists are looking at all the time.  Whether you use it to go counter the crowd, exploit the popular tendencies by front running (not illegally in this case), or just by hopping on board with the move.  For example, using the above statistics, you would be watching for weakness into the end of October (not the case for the year I’m writing this article, 2011) and watch for buy signals on some outperforming stocks. This is just one of countless ways to use the best six months outperforming trend to your benefit.

There are many other historical stock market trends that are researched and analyzed in the Stock Trader’s Almanac that help with timing of the market, making it well worth the small investment to have this reference guide by your side as you are writing out your weekly battle plan for the market.  The research is well thought out and thorough, and covers topics such as market bias into and out of holidays, option expiration, monthly breakdowns and even days of the week. Just remember, the Stock Trader’s Almanac is a tool, not a one stop solution to your trading business, so don’t think you won’t have to do some work along side with it.  Read more about the Stock Trader’s Almanac below, and as always, feel free to leave comments or write me with any questions you may have.

 

Trade well,

 

Michael “tiny” Saul

 

 

Stock Trader’s Almanac 2012 (Almanac Investor Series)
by: Jeffrey A. Hirsch
publisher: Wiley, published: 2011-10-11
ASIN: 1118048695
EAN: 9781118048696
sales rank: 1475
price: $23.65 (new), $23.65 (used)

A time-tested guide to stock trading market cycles

Published every year since 1968, the Stock Trader’s Almanac is a practical investment tool with a wealth of information organized in calendar format. Everyone from well-known money managers to savvy traders and investors relies upon this annual resource for its in-depth analyses and insights. The Stock Trader’s Almanac 2012 contains essential historical price information on the stock market, provides monthly and daily reminders, and highlights seasonal trading opportunities and dangers.

The Stock Trader’s Almanac 2012 is packed with timely insights and targeted analysis to help you navigate turbulent markets and beat the odds in the year ahead. This trusted guide combines over a century’s worth of data, statistics, and trends along with vital analysis you won’t get anywhere else. The 2012 edition includes a revision of the Seasonal Switching Strategy that significantly boosts returns as well as new information on the coming Super Boom. Other key seasonal and cyclical updates include pre-presidential election year cycles and perspectives, how the government manipulates the economy to stay in power, incumbent victories vs. incumbent defeats, and the market impact of the lame duck year.

  • Alerts you to little-known market patterns and tendencies to help forecast market trends with accuracy and confidence
  • An indispensable annual resource, trusted for over 40 years by traders and investors
  • The data in the Almanac is some of the best in the business

For its wealth of information and the authority of its sources, the Stock Trader’s Almanac stands alone as the guide to intelligent investing.

 
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