Stock Market Statistics

Sell in May and Go Away?

In my 2006 edition of the Stock Trader’s Almanac, Yale and Jeffrey Hirsch revealed some pretty impressive statistics that formed the basis of their “Best Six Months” strategy. Since 1950, their statistics showed the Dow gaining 10,764 points during the six month period of November through April. For the six month period from May through October, the Dow lost 786 points. The S&P gained 1,053 points during the best 6 months and gained only 85 points during the worst.

To bring home the significance of these statics even more, Yale and Jeffrey, created a table based upon a compounding $10,000 investment. The Dow produced a $489,933 gain versus a $502 loss. A good trader should be able to take this information and improve upon these figures significantly.

Which month is the most bearish month of the year?

September is, but October typically puts in a significant low. It is a time for tax selling and portfolio cleaning. Fund managers must get rid of their losers in preparation for year end statements. Since 1964, October lows have seen 17 declines of over 10%. It has proven profitable to buy the rallies that soon fallow these lows, often through January and beyond. Because of this, November, December, and January have become the most bullish three months of the year.

The January Effect

As January Goes, so goes the year? This is another amazingly accurate statistic discovered by Yale Hirsch. The January barometer has an accuracy ratio of 90%. Every down January since 1950 was followed by a down or flat year. Except for 1956, these down years averaged a 13% decline!

Most Bullish Days of the Month

The last three days of the month followed by the first two days of the next month are among the most bullish days of them month. Another three bullish days occur on days nine, ten, and eleven, when money flows into retirement funds.

Mid Term Election Cycles

Like clockwork, presidents typically lose many of their party’s seats after midterm elections. He must then at least make it appear that he and his party are putting the country’s affairs in order. A new bull market is born. Disposable income and benefits increase, interest rates and inflation decrease. If he can make believers out of voters, he stands a chance of becoming elected for another term. Once he is reelected, reality sets in, and it’s time for a new bear market.