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