It’s not a surprise to many investors that this week began with three days of market declines. Lots of bad feelings for most investors who aren’t trading penny stocks going into the long holiday weekend.
Profiting in Penny stocks makes it somewhat easier to digest these continuing market declines as well as:
- Whole continents threatening to drown into the financial abyss
- World-leading countries heading purposely down the same road
- Major financial firms apparently “misplacing” all of their customers’ segregated trading account money
- Lots of taxpayer funded “green” energy going into “the red”
What’s not to like really? The long Thanksgiving Weekend is typically a time of general good feelings. Lots of food, desserts, NFL games on TV all day long, a day (or or a few days) off of work. Not bad.
A lot of good feelings can be erased by the runningback for your favorite football team breaking his thumb.
Seriously though, consider the fact that market volume has expanded during the 1982-2000 bull market. However, the volume decline during the recent two-year rally suggests that the 2009-2011 stock market gain was not a new bull trend, but instead a bear-market rally.
The curse of the bear-market rally is its low and declining volume. Commentators dismissed it as being unimportant when it persisted for a year and a half. Contrarily, the stock market’s rise on contracting volume for an unprecedented 26 months means that it is the biggest bear market rally ever.
Many investors point out the differences between the economic/financial situation today as that of the late 1920’s-early 1930’s. The rally that followed the 1929 low only lasted five months (November 1929 – April 1930). The rally that came after the 2009 low lasted 26 months (March 2009 – May 2011).
If a longer bear market rally does imply a longer decline, when will the market declines end?
For the longest time, the Friday after Thanksgiving has, most consistently, been the most favorable trading day of the year. Then somewhere along the way, someone let it out of the bag and the results haven’t been the same since. We do see evidence that the bear market never truly departed since the time after the October 2007 high. Not even during the period since the March 2009 low. But don’t get discouraged.
2012 should turn out to be pretty good for stocks.
From here on, the market’s historic calendar is in investors’ favor. IF we can stay out of recession in the U.S. and IF we can avoid one in the developing world, earnings of U.S.-based companies may hold up well enough to support higher stock prices.
The EU recession is already factored in.
2012 is a presidential election year. Since 1948, markets have gained in every single election year except for 2000 and 2008. In fact, stocks have, on average, put up their second-best performances in the fourth year of a president’s term. The third year has been the best historically.
During years which incumbent presidents run for re-election, the market has beaten its average election-year performance significantly. Penny stocks have also followed this trend since 1980. It doesn’t matter if the incumbent wins or loses or how good or bad a president he was. Unlike Bush vs. Gore in 2000 or McCain v. Obama in 2008, the market just has done better in “incumbent” election years than in “up for grabs” elections.
The data is remarkably consistent.
The S&P 500 index, excluding dividends, has posted average returns of 5.7% during all presidential election years from 1944 to 2008.
Using the Dow Jones Industrial Average and earlier proxies, the Stock Trader’s Almanac calculated nearly identical presidential election-year returns of 5.8% from 1832 to 2008. The Dow averaged 7.4% annually in election years from 1900 to 2008 according to the Stock Trader’s Almanac’s figures.
We are bullish on the market for the rest of this year as well as next year. The S&P 500 narrowly escaped a bear market when it closed at 1,099.23 on October 3rd and since bounced back strongly. This suggests the bull market IS still alive. To back that theory, S&P’s Investment Policy Committee recently raised its 12-month target for the S&P 500 to 1,360 from 1,260 where it closed Monday.
Regardless of all this high-frequency trading and craziness and volatility, these seasonal patterns continue to deliver. 2011 has been a “textbook” year for the stock market because it peaked at the end of April and bottomed in October. We’ve entered the strongest six months of the stock market calendar, November through May.
We don’t expect fireworks, but Dow 13,000 would not be a surprise.
Happy Thanksgiving All!