TDL's
Seasonalities:
Decembers Are Usually Mildly Bullish
By James Dines, editor
The Dines Letter
1)
Dow-Jones Industrials: Checking all Dow Decembers since
1961, our Research Department learned that 25 had risen, 7 declined,
and 9 were neutral, for a bullish track record of 78%. Taking
it back further to 1950, we find December as the best-performing
month for the S&P 500 and second best for the Dow in terms
of average percentage change. While the number of advancing Decembers
is more than triple the retreaters for the Dow, extreme movements
have been rare. The over-all 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 Top in November, followed by early-December
weakness and then late-December rallies, for net-natural action.
Since 1961 there have been only seven Decembers with raises exceeding
5%: 1970,1971,1976,1985,1987,1991,1999. There have been no extreme
declines. Decembers "Modulate" in preparation for the
important changes due at the start of every new year.
2.) 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 (this year beginning on 24 Dec 02 running through 03
Jan 03) the average rally now stands at 1.7% as of Jan 02.
3) 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 1074. Our Research Department has continued updating his average
every year since then and, as of 2002 this 57-year average had
not fluctuated much, at 9.91%. 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%, 7.2% and 14.3%. Thus,
assuming that the 13 Nov 2002 low at 8299 holds, a projected
rally toward around the 9121 area is indicated between December
2002 and January 2003.
4) Taking the fourth
quarter as a whole, historical records show it outperforming
all the other quarters, having posted gains for the Dow in 58
out of 82 years, or 71% of the time, as against 59% for the other
three quarters. The fourth quarter gains averaged 2.58% as compared
to 1.71%, 1.73% and 1.32% for the first three quarters. Focusing
on more recent times, an impressive 4.9% gain in the S&P
500 has occurred over the past 22 years. Eighteen years were
winners (82%) and only 4 were losers. If the S&P 500 rose
by 4.9%, it would theoretically reach 855 by the end of 2002,
which might be a conservative estimate considering is already
stood at 936 on 21 Nov 02. Beginning our count on the DJI in
1988 (after the 1987 crash) fourth-quarter rallies averaged 5.9%,
with only 2 downers out of 14 years, up 86% of the time. Likewise
a projected price of 8040 for the year 2002 looks too conservative
considering it's already around the 8800 level. In an article
by Craig Karmin in the Wall Street Journal on October
7, 2002, the following countervailing forces were cited to work
against the seasonality: A) tax-related trading by mutual
funds could be less of a factor; while they are generally known
to do a lot of tax-motivated selling at the end of their fiscal
year (Sep-Oct) to offset incomes generated, the fact that most
have suffered huge losses have rendered the timing of when to
sell irrelevant; the selling might now extend to November and
beyond. B) Buyers wearied by this bear market might no
longer be anticipating the "January Effect." C)
Fear of recession, war and terrorism might curb investors'
desire to buy.
Editor's Note: James Dines is editor of The Dines Letter, P.O. Box 22, Belvedere, CA 94920, 1 year, 17 issues, $195. Visit the web site at www.dinesletter.com.
