Market Pulse: Trading based on the calendar
December 7, 2017
Market timers can use a variety of strategies. Some rely on intuition, while others use exotic indicators and overbought/oversold levels. A few "seasonal traders" use cycles and the calendar. But does the calendar really affect the market?
Consider these findings from Jay Kaeppel, author of "Seasonal Market Trends."
In the year after a presidential election, the months of July and December are especially bullish. Consider this: Since 1901, if you invested in the Dow only during July and December of post- presidential election years, your portfolio would be up 161 percent. If, on the other hand, you invested in all months except July and December of post-election years, then your portfolio would be up 18 percent.
There's more. The months of July and December of post-election years were up 72 percent of the time. The market was up for the other 10 months 55 percent of the time. Clearly, most of the market's gain came in July and December. This is a post-election year. If December will be one of the better months it will be a very Merry Christmas.
Since 1933, if you invested in the Dow only during the days surrounding a holiday, then your portfolio would have performed better than if you had only invested during the non-holiday periods.
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The market generally performs well around holidays like Independence Day, Labor Day, Christmas, New Year's, etc. Let's consider the three trading days before and three after a holiday. Those days comprise roughly 23 percent of all trading days.
Since 1933, if you invested in the Dow only during the days surrounding a holiday, then your portfolio would have performed better than if you had only invested during the non-holiday periods. Put another way, those that only invested near the holidays held stocks only 23 percent of the time, but they beat those invested 74 percent of the time during the non-holidays.
I've discussed bullish periods, but what about days to avoid? It turns out the fifth, sixth, and seventh trading day before the end of the month (i.e. around the 23rd of each month) are typically bearish. Since 1933, if you invested in the Dow only for those three days every month you would have lost 80 percent. Amazing!
Are these calendar strategies meaningful? Some will say "yes," while others will disagree. If you lean toward "yes" then note that the first two strategies point to an upward market a few days before Christmas and into January. I'll be fully invested.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.