In this article I wrote about what happens after one of the 3 major indexes (Dow Industrials, S&P 500, Russell 2000) registers four consecutive “Up” months (Summary: It’s good). Unless something dramatic happens between now and January 31st, all 3 of the indexes will be recording their 5th straight up month (which extends the “bullish 12-month period” I wrote about in the linked article for another 12 months, through January 2021).
This will also trigger a similar “bullish momentum” type of signal from the “November through January Indicator”, which states that if the market:
*Is “up” in November AND December AND January
*It should be higher 12 months later
The Historical Record
For testing we will use just the Dow Industrial Average starting in 1935 using the following rules:
*If the price of the Dow closes higher in November, December and January
*We will buy the Dow at the end of January and hold for 12 months
Figure 1 displays the cumulative % growth for this strategy as a standalone
Figure 1 – Cumulative Dow price % +(-) if held for 12 months after Dow is “UP” in November, December and January
Figure 2 displays the 12-month returns in numerical form
Figure 2 – 12-month Dow price % +(-) if held for 12 months after Dow is “UP” in November, December and January
Figure 3 – 12-month Dow price performance after Nov-Dec-Jan Buy Signals, versus all other 12-month periods
Summary
If the Dow closes higher for January 2020, does that “guarantee” a continuation of the bull market? No, not at all. But it does offer one more reason to continue to give the bullish case the benefit of the doubt.
Jay Kaeppel
Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author. The information presented does not represent the views of the author only and does not constitute a complete description of any investment service. In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security. The data presented herein were obtained from various third-party sources. While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Past performance is no guarantee of future results. There is risk of loss in all trading. Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance. Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.
