The Dines Letter, Seasonalities:

July and the “Traditional Summer Rally”?

By James Dines
The Dines Letter

       Some define the “Traditional Summer Rally” as any advance of at least 5% from the low established in May or June, to the high reached during the third quarter. On that overly-generous basis, 43 of the past 50 summers (86% of the time), have enjoyed a rally. Some Analysts have tightened this definition to the “net gain from May 31 to Aug 31,” which mean there were rallies 56% of the time (28 of the 50 years), likewise not overly useful. Our Research Department has been tracking this Seasonality very closely over the years and, taking July alone, the actual record since 1961 has not been as encouraging as the legend. We count the last 50 Julys as 28 positive (56%) and 22 negative (44%), useful but again not overly impressive.
       But we discovered that when we compared the DJI and the S&P 500 in July with August and September, the month of July has in fact been the best-performing month in the third quarter since 1950, rising an average of 1.22% and 0.98% respectively, so the early part of the summer rally tends to be strongest.
       Finally, we experimented with something new: and counting the number of times the month of June was down (27 in the last 50 years), and discovered that their subsequent Julys were up 17 times and down 10 times, thus indicating that declining Junes led to rising Julys almost two our of three times, or 63%. A down June would thus increase favorable odds for a bullish July! Curiously, Research discovered no corresponding Seasonality for rising Junes having favored declining Julys, and so far June has been down, a bullish sign for this July.
       Next our Research Department tallied the DJI’s closing price for the five days before America’s annual 4th of July Holiday, as compared with the DJI (close) five days after the 4th of July: in the 50 Julys from 1961 to 2010, the DJI’s net percentage of gains for that 10-day period was positive 32 times. The 32 positive results (64%) in any case are more bullish for these 10 days than the record for the whole-month period (which is 56%, as indicated), The foregoing suggests that seasonal percentages favor strength in early July, followed by less of a gain later in July.
       Golds and Silvers: The Dines Gold Stock Average (DIGSA) in the last 43 Julys has risen 19 times, declined 23 times and was neutral once, for a somewhat bearish outlook (55% of the time). The Dines Silver Stock Average (DISSA) has risen 23 times and declined 20 times, for a somewhat neutral seasonality (53% of the time). Not helpful in our calculations of odds for gold and silver stocks this month.
       Editor’s Note: James Dines is editor of The Dines Letter, P.O. Box 22, Belvedere, CA 94920, 1 year, 14 issues, $295. www.DinesLetter.com