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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. 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.”

Figure 3 displays the daily KTI readings between now and the first part of 2016.Figure 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