By James Dines, editor
The Dines Letter
Since 1961 there have been 26 higher August and 17 lower. The downers were in 1964, 1966, 1967, 1973, 1974, 1976, 1977, 1981, 1985, 1988, 1990, 1991, 1992, 1995, 1997, 1998, and 2001. The overall percentage is bullish at 60%. Note that there have been three or four downers per decade but there were six in the 1990s, so percentages might be building up for more downers. Actually, taking the Dow and S&P 500 back to 1950, instead of 1961, August's monthly performance ranks second worst, for both indices.
However, despite August's relative weakness, traders might consider trading opportunities during the last three days before Labor Day, a long holiday weekend, as the Dow has been up 31 of the last 43 years, for a 72% bullish track record. Labor Day this year falls on September 6th, so Sep 1 - 3 should be bullish.
Examining August combined with July's action however marked important turning points in every single year from 1982 to 1990 - and from 1998-2002 the high or low for the year in most cases. Mr. Robert Prechter, of the Elliott Wave Theorist (PO Box 1618, Gainesville, GA 30503), deserves credit for having discovered this interesting Seasonality, which nonetheless was muted from 1991-97, perhaps by the "Mother of All Bull Markets" of the 1990s. There were neither Tops nor Bottoms registered in the summers of 91-97. In 1998 and 2001 the July-August decline led to Sep 1 and Sep 21 bottoms and an important TDL "Buy" on 8 Sep 98. In 1999, the 24 Aug Top was important enough to have preceded a 1,470 point drop to a bottom on 16 Oct 99. In 2000 the July rally led to the 6 Sep Top. In 2002 the 24 July bottom at 7,433 stands as the Dow's lowest point since Oct 97.
The Democratic Party Convention just got underway last week, and we cannot resist sharing with you a seasonality that Yale Hirsch (184 Central Ave, Old Tappan, NJ 07675) started that might predict the winner of the next presidential election. If the market rises from the time the second-major party (Democrats currently) holds its convention, up to election day, the incumbent party (Republicans currently) wins. If the market declines in that period, the incumbent party gets ousted.
Based on the Dow, the incumbent party indeed won in 16 elections since 1900 - 14 of which saw rising markets, an impressive 88% occurrence. Conversely, in the 10 elections the incumbent party lost, 7 (70%) occurred when the Dow went down. Interestingly, Al Gore almost beat George W Bush and this was matched with a Dow rise that was just as close as the election - up only 0.94%. Clinton held on to power with a convincing win, paired with the Dow's 7% rise. George H W Bush lost in 1992 and the Dow was off 1.3%. When the elder Bush however won in 1988, the Dow was up 5.4%.
The Dines Gold Stock Average (DIGSA) in the last 36 Augusts rose 17 times, declined 16 times, and was neutral 3 times, for no useful Seasonality. The Dines Silver Stock Average (DISSA) rose 20 times (57%), declined 15 times (43%) and was neutral once. So, gold is neutral while silver's percentages are slightly bullish. Yet, based on DIGSA, careful research also reveals that gold shares' more-important Bottoms occurred in Nov 71, Aug 76, Jul 82, Jul 86, Sep 88, May 89, Jun 90, Nov 92, Sep 93, Dec 97, Aug 98, Jul 99, Oct 00, Nov 01 and Aug 02 - mostly around the third or fourth quarters. This indicates that gold stocks might be approaching another important Bottom within the next few months."
Editor's Note: James Dines is editor of The Dines Letter, P.O. Box 22, Belvedere, CA 94920, 1 year, 17 issues, $195, since 1960, has been making recommendations to investors for over 40 years. Recommendations of The Dines Letter are based on mass psychology, technical and fundamental economics; thus studying both the company and investor behavior. Mr. Dines' insights have gained him a reputation as a well-renowned, highly respected and regarded investment advisor. Please visit his website at: www.dinesletter.com.
