By James Dines
The Dines Letter
1) Dow-Jones Industrials: Checking all Dow Decembers since 1950, our Research Department discovered that 40 had risen, 15 declined, for a bullish track record of 73%. December is the top 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 2003 (about one out of six). December 2002 stands as the only December with a decline in excess of 4.2%. Decembers "Modulate," as we call the transition, in preparation for the important changes due at the start of every new year, often offering subtle clues.
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 from 23 Dec 05 until 3 Jan 06). The average rally for the past 36 years was 1.62% as of Jan 05.
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 Bob's average every year since then and, as of 2005, this 60-year average had not varied much, at 9.84%. Actual year-end rallies from 1988-2004 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%, 6.5%, 11.3%, and 8.2%. Thus, assuming that the 1 Nov 2005 low at 10,406.80 holds, a projected rally toward around the 11,431 area is indicated between December 2005 and January 2006.
4) Taking the fourth quarter as a whole, historical records show it outperforming all the other quarters, having posted gains for the Dow in 61 out of 84 years, or 73% of the time, as against 59% for the other three quarters. The fourth quarter gains averaged 2.84% as compared to 1.56%, 1.79% and 1.3% for the first three quarters. Focusing on more recent times, an impressive 5.4% gain in the S&P 500 has occurred over the past 25 years. Twenty one years were winners (84%) and only four were losers. If the S&P 500 rose by 5.4%, it would theoretically reach 1296 by the end of 2005. Beginning our DJI count in 1988 (after the 1987 market smash) fourth-quarter rallies averaged 6.6%, with only 2 downers in 17 years, up 88% of the time. This projects the DJI at 11,266 for the year 2005. Those are the cold statistics.
5) Gold: Counting the last 36 Decembers the Dines Gold Stock Average (DIGSA) reveals no useful Seasonality, having risen 19 times and declined 17 times (neutral once). The Dines Silver Stock Average (DISSA) rose 17 times, declined 19 times, for a slightly negative seasonal environment (53% 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. Visit the web site at www.dinesletter.com.
