Seasonal Trends Favorable Through Year-End

  • SumoMe

In my book “Seasonal Stock Market Trends” I combined a number of, well, seasonal stock market trends (what else?) from pioneers such as Yale Hirsch and Norman Fosback, Peter Eliades and whoever else I could think to steal, er, I mean “learn” from.

The end result was something I refer to as the “Known Trends Index” or KTI for short.  The KTI is comprised of 13 different seasonal trends.  Each day I simply add up the number of seasonal trends in the index that are presently rated “Favorable” for the stock market. Interpretation is pretty straightforward:

*KTI >= +5 = Good

*KTI <= +1 = Bad

*KTI +2, +3, +4 = Mostly good but best to add another confirming indicator as a filter (for example Dow Industrials above 200-day MA)

Historical Results

Figure 1 displays the growth of $1,000 invested in the Dow Jones Industrials Average only on those days when the KTI is +5 or higher since 12/31/1934.  No interest is assumed while out of the market. 1Figure 1 – Growth of $1,000 invested in DJIA only while KTI >= +5 (since 12/31/1934)

To better appreciate the lower left to upper right trend displayed in Figure 1, now let’s consider Figure 2.  Figure 2 displays the growth of $1,000 invested in the Dow Jones Industrials Average only on those days when the KTI is +1 or less since 12/31/1934.  Again, no interest is assumed while out of the market. 2Figure 2 – Growth of $1,000 invested in DJIA only while KTI <= +1 (since 12/31/1934)

For the record:

*While the KTI has been +5 or higher the Dow has gain +5,297%

*While the KTI has been +1 or lower the Dow has lost -96%

This difference is what we “quantitative analyst types” refer to as “statistically significant.”

Figure 3 displays the daily KTI readings between now and the first part of 2016.3Figure 3 – KTI Index readings

As you can see, the KTI readings are all +5 or higher, i.e., seasonally favorable, through 1/6/2016.

Summary

So does a KTI reading of +5 or higher guarantee higher stock prices?  Not at all.  Alot of things can wrong between now and then.  Still, based on the historical results displayed in Figure 1, I am giving the bullish case the benefit of the doubt.

Jay Kaeppel

2 thoughts on “Seasonal Trends Favorable Through Year-End

  1. Jay

    I read your Seasonal Stock Market Trends book recently and found it very interesting – good to see from this post that it continues to perform post 2007 when the book was published…just wondering are you using the system now pretty much as described in the last chapter of the book or have you made some other tweaks since then? Also, have you done any research into these factors in other markets around the world?

    Thanks

    Derek

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