That number is 25,383.11. The Dow needs to close above this level on June 30th. If it does, that will complete a “2nd Quarter Trifecta”, i.e., a 2nd quarter of the year during which April, May and June all show a monthly gain.
Why might this matter? Let’s consider a little history.
The History of the 2nd Quarter Trifecta
For our purposes, we will consider the 9 months (July through the following March) following a 2nd Quarter Trifecta to be “favorable” for stocks. So, for our test each time the Dow shows a gain for April AND May AND June in the same year we will buy and hold the Dow for 9 months. During all other months no gain or loss is accrued.
Figure 1 shows the cumulative gain for this “strategy” starting back in 1901.
Figure 1 – Dow cumulative % +(-) during 9 months following
The key thing to note about Figure 1 is that the equity curve exhibits what I like to call “LLUR” – which stands for “Lower Left to Upper Right”, which is how we like our equity curves to look.
Figure 2 shows the actual results on a case-by-case basis.
Figure 2 – Dow price performance in 9 months after 2nd Quarter Trifecta
Figure 3 displays a summary of these occurrences.
Figure 3 – Dow performance summary for 9-months after 2nd Quarter Trifecta signals
Things to note:
*Following a 2nd Quarter Trifecta signal, the Dow has not registered a 9-month loss since 1919-1920, a string of 13 consecutive winning trades
*The average 9-month gain was +15% versus an average loss of -1%
*The worst 9-month loss was just -3% following the 1919 signal
Summary
So, you can see why 25,383.11 is an important price level for the Dow. If it closes June above that level does that guarantee that the Dow will be higher by the end of March 2021? Not at all. But it does add another significantly favorable piece of history to the weight of the evidence.
See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine
See also Jay’s “A Strategy You Probably Haven’t Considered” Video
See also Video – The Long-Term…Now More Important Than Ever
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 represents 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.
Very interesting article, Jay. Appreciated as always.
It appears that three consecutive positive months ( momentum ) may imply favorable forward returns. When a “generic” three month sequence ( not confined to the months of April May and June ) is identified after the advent of high rank “worst quarter” market losses, accompanied by a subsequent SP index price / moving average cross ( to upside ), forward two year returns have been favorable in 7 out of 8 instances.
In Table 1 https://tinyurl.com/y9uv8nl6 , the record of (calendar) worst quarterly loss events and subsequent moving average cross signaling with forward 1, 2, & 5 year returns is shown. It appears that this sequence has occurred in close proximity to important market “lows”.
Applying positive three month consecutive sequence to the data with two year returns: https://imgur.com/a/Y6UGVug
So, indeed, we will have to see if the market close of June is positive for the month.