TDL's
Seasonalities:
Decembers are Usually
Mildly Bullish
By James Dines, editor
The Dines Letter
1.
Novembers: October was an up month despite the vicious
5.6% decline in its final week. According to Dinesism #29 (DINPIVOT),
November as a month should be a downer, but maybe it's reacting
to October's final week instead since November looks higher so
far.
2. Dow-Jones Industrials:
Checking all Dow Decembers since 1961, our Research Department
learned that 24 had risen, 7 declined, and 9 were neutral, for
a bullish track record of 77%. Taking it back further to 1950,
we find December as the best-performing month for both the DJI
and the S&P 500 in terms of average percentage change. While
the number of advancing Decembers is 3.4 times the retreaters,
extreme movements have been rare. The overall impression of Decembers
is one of churning neutrality, probably because of the buffeting
cross-currents created by tax-motivated buying and selling. Actually,
there often tends to be a rally peak in November, followed by
early-December weakness and then late-December rallies, for net-neutral
action. Since 1961 there have been only seven Decembers with
rises exceeding 5%: 1970, 1971, 1976, 1985, 1987, 1991, and 1999.
There have been no extreme declines. Decembers "Modulate"
in preparation for the important changes due at the start of
every new year.
3) Popularly known
as the "Santa Claus Rally," a short and sweet
rally for traders has been observed in the S&P 500 during
the final five trading days of the year plus the first two in
January. Updating the Stock Trader's Almanac the average
rally now stands at 1.6% as of Jan 01.
4) We credit Bob Stovall
with having conducted a seasonality study on year-end rallies
since World War II. His basis for calculating a year-end
rally begins with the low DJIA close in November or December
and ends with the high DJIA close in December or January. From
November of 1945 to January 1985, his study found that year-end
rallies ranged from between a low of 0.9% in 1968 and a high
of 22.2% in 1974. Our Research Department has continued updating
his average every year since then and, as of 2001 this 56-year
average had not fluctuated much, at 9.83%. Actual year-end rallies
from 1988-01 have been: 8.87%, 8.83%, 11.94%, 14.25%, 4.39%,
8.62%, 6.99%, 13.17%, 14.31%, 10.11%, 10.89%, 10.79% and 7.2%.
Thus, assuming that the Nov 2001 low at 9014.46 holds, a projected
rally high approximately around the 9900.58 area is indicated
in December or January 2002.
5) Taking the
fourth quarter as a whole, an impressive 4.7% gain in the
S&P 500 has occurred over the past 21 years. Seventeen years
were winners (81%) and only 4 were losers. If the S&P 500
rose by 4.7%, it would theoretically reach 1090 by the end of
2001, which might be a conservative estimate considering it already
stood at 1141 on Nov 14/01 and so should achieve it on Dec 31/01.
Beginning our count on the DJI in 1988 (after the 1987 crash)
the fourth-quarter rally averaged 5.3%, with only 2 downers out
of 13 years, up 85% of the time. On a sobering note however,
such rallies have been trending down at 17%, 11% and 1.3% respectively
from 1998 to 2000.
6) Gold: Over
the last 33 Decembers the Dines Gold Stock Average (DIGSA) has
been neutral, having risen and declined 16 times each (neutral
once). The Dines Silver Stock Average (DISSA) rose 13 times,
declined 19 times, (and was neutral once), for a negative seasonal
environment (59% of the time). However, based on Dinesism #9
(the Dines Rule of Gold Seasonality, DIRGS), the first quarter
is seasonally positive for gold and silver stocks, so purchases
made on weakness during Novembers and Decembers usually work
out profitably, based on Seasonalities alone, other things being
equal which they never are.
Editor's Note: James
Dines is editor of The Dines Letter, PO Box 22, Belvedere, CA
94920. 1 year, 17 issues, $195. Visit the Web site at www.dinesletter.com.
