By James Dines, editor
The Dines Letter

       Dow-Jones Industrials: Checking all Dow Decembers since 1950, our Research Department learned that 38 had risen, 15 declined, for a bullish track record of 72%. December is the second best-performing month for the S&P 500 and the Dow in terms of average percentage changes. While the number of advancing Decembers is more than 2-1/2 times the retreaters for the Dow, 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 Top in November, followed by early-December weakness and then late-December rallies, for net-neutral action. Since 1950 there have been only nine Decembers with rises exceeding 5%: 1956, 1970, 1971, 1976, 1985, 1987, 1991, 1999, and 2002 (about one out of six). There have been no extreme declines. Decembers "Modulate," as we call it, 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 27 Dec 03 running through 05 Jan 04, the average rally now stands at 1.7% as of Jan 03.
       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 1974. Our Research Department has continued updating his average every year since then and, as of 2003 this 58-year average had not varied much, at 9.85%. Actual year-end rallies from 1988-02 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%, 14.3%, and 6.5%. Thus, assuming that the 11 Nov 2003 low at 9,737.79 holds, a projected rally toward around the 10,697 area is indicated between December 2003 and January 2004.
       4) Taking the fourth quarter as a whole, historical records show it outperforming all the other quarters, having posted gains for the Dow in 59 out of 83 years, or 71% of the time, as against 60% for the other three quarters. The fourth quarter gains averaged 2.67% as compared to 1.65%, 1.86% and 1.34% for the first three quarters. Focusing on more recent times, an impressive 5.03% gain in the S&P 500 has occurred over the past 23 years. Nineteen years were winners (83%) and only 4 were losers. If the S&P 500 rose by 5.03%, it would theoretically reach 1046 by the end of 2003, which might be a conservative estimate considering it already stood at 1062 on 7 Nov 03. Beginning our DJI count in 1988 (after the 1987 crash) fourth-quarter rallies averaged 6.2% with only 2 downers in 15 years, up 87% of the time. Likewise a projected price of 9850 for the year 2003 might be too conservative considering it's already up to 9903 on 7 Nov 03.
       5) Gold: Counting the last 34 Decembers the Dines Gold Stock Average (DIGSA) reveals no useful seasonality, having risen 18 times and declined 16 times (neutral once). The Dines Silver Stock Average (DISSA) rose 15 times, declined 19 times, for a negative seasonal environment (56% 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 of course they never are.
       Editor's Note: James Dines is editor of The Dines Letter, P.O. Box 22, Belvedere, CA 94920, 1 year, 17 issues, $195. For a limited time, James Dines is offering a Look-See 3-Issue Trial for $59. Order online at www.dinesletter.com.