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Almanac For Investors
Perspective | 28 January 2008
By: Xavier Lim
Articles (51) Profile

Can someone tell me where the stock market is heading? I think this is the question that you and I are asking everyday. If there is a great fortune teller who could help us predict when to buy and sell our shares, that would be fantastic.

Great fortune teller? Sorry, Shares Investment is not able to provide you with one, but we are able to provide you with a stock market almanac. Of course, we would like to remind readers that it is more appropriate to consider this almanac as guidelines rather than rules simply because no indicator will provide 100% correct signals in the stock market. Last but not least, fundamental perspective must be taken into serious consideration. Let us go through the almanac.


Market action during the first 5 trading days of January often serves as an excellent “early warning” system for the year as a whole. Every January which ended lower since 1950, preceded a new or extended bear market, or a flat market. Conversely for the same period, every January, which closed higher preceded a bullish market with only 5 exceptions; i) 1966 – Vietnam war, ii) 1973 – early cease-fire imminence that caused the market to rise temporarily, iii) 1990
- Saddam Hussein turned it into a bear year, iv) 1994 – flat year and v) 2002 – war on terrorism after September 11.


Typically, as January draws to a close, share prices tend to consolidate in February. Sharp and strong January movements are often corrected in February as well.


Marching into the end of the first quarter, March tends to be a stronger month due to enthusiasm towards earnings and prospects of a new and better year in the market. However, market tends to decline by the end of March. This is the sixth best month of the year.


Stocks usually anticipate good first quarter earnings by rising sharply before earnings are reported. The first half of the month no longer does better than second half. Statistically, this is rarely a dangerous month except in big bear markets like 2002. This is the fourth best month of the year.


“Sell in May and go away”. This is what we always hear in the stock market. May is often thought of as the treacherous month for stock markets.


The summer rally in most years is the weakest rally of all the four seasons. June ranks near the bottom for the Dow Jones Industrial Average (Dow) along with August and September since 1950. Even in the rosy market following the share prices bottoming in 1982, May and June have seen poor performances.


July is often the best month of the third quarter. It is the start of the second half that brings an inflow of retirement funds. Huge gains in July usually provide better buying opportunity over next 4 months. This is the fifth best month of the year.


August was the best stock market month from 1901 to 1951 due to harvesting seasons. However, as agriculture currently makes up less than 2% of the populationʼs main form of livelihood, August has become one of the worst months on record for the stock market. This was the month that Saddam Hussein triggered a 10% slide in 1990. This is the third worst month of the year.


September is the worst month on record for the stock market as Portfolio managers tend to clean house after Labor Day. The horrific 9/11 event also occurred in this month.


Another jinx month will be October because of its crashes in 1929, 1987 and the 554 point drop on October 27, 1997. Yet October is a ʻbear killerʼ with the worst 6 months of the year ending here. October is a great time to buy depressed stocks. In fact, market went up in October in the last 5 years (except for last year, 2007) after atrocious September.


It is the start of the best 6 months of the year. Statistically, market ended lower only 9 times this month in 52 years.


This is where small cap stocks start to outperform larger cap stocks near middle of the month. Santa Claus Rally starts from within the last 5 days of the year and the first 2 days in January. However, Santaʼs failure tends to precede a bear market.

After going through the almanac, have you summed up which is the best month of the year to buy shares? Mark Twain, US humorist, novelist and short story author probably summed up the best way to view the timing of stock purchases by month of the year when he wrote: “October. This is one of the particularly dangerous months to invest in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February.”

Lastly, according to CNBC, the Dow has done well historically in the election years, with a rough average of a 9 percent gain Since 1896, the Dow has moved up 19 times during the presidential election years and down only 8 times.

Shares Investment hopes that you will benefit from the almanac and use it as another tool to beat Mr. Market.

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

Please click here for more information about this author.

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