|
Learn
about POWER
INVESTOR, the screening software I recommend in my
books. It costs only $99 but tracks more stocks and funds
than MetaStock ($929) and Window on Wallstreet ($704). |
Articles
Seasonal Signs
by
Jason Kelly
09/21/2002
Now is the season to start buying stocks. It doesn't hurt that
the market has fallen for the past four weeks. The stocks
that I've been mentioning lately are at levels below where I
first began telling you to watch.
The seasonal argument has two components. First, we are
approaching the third year in the presidential term. Second,
we are approaching the November-to-April half of the year, when
stocks have historically performed their best.
Since 1914, the Dow has risen an average of 50 percent from its
lows in the second year of a presidential administration to its
highs in the third year. These rallies have never failed,
regardless of which party occupied the White House, whether we
were at war, the rate of inflation, or how the economy was doing.
Why does this happen? Because presidents want themselves or
their party to be reelected
and they do all they can for the economy on the homestretch to
the election year. After the election, Washington pump-priming
lets up and the first and second years of an administration are
often marked by poor stock market returns.
The November-to-April rising-market phenomenon is hard to
understand. Some people say it happens because people are back
to work from summer, past the seasonally-slow September, and
past the mutual fund October 31st deadline for registering
capital gains.
But it doesn't really matter why, it only matters that it
happens. Since 1950, the Dow has gained an average of 8 percent
between November and April, while gaining an average of only
0.4 percent between May and October.
Sandra Ward wrote in the September 16th Barron's:
Looked at another way, an initial investment of $10,000 made
in the November-April period beginning in 1950 would have grown
by $457,103 through April 2002. That is, anyone who got into
the market every November and got out every April 30, repeating
this strategy year after year, would have seen such returns.
If the reverse strategy were used with the investor in the
market during May-October periods but out of stocks the rest of
the year the same 52-year stretch would have generated a
loss of $77. There were 21 losing May-October stretches from 1950
through 2001, compared with 12 for November-April periods.
If you've been reading this website and the email I send to the
free list, you've done pretty well
over the summer. I suggested buying Microsoft at the beginning
of August, then suggested selling in the low $50s in anticipation
of lower prices ahead. We have those lower prices now.
Microsoft is trading around $47. While that's not as low as the
July 24th price of $41.41, it's still a good area to start buying.
I think the price might slide a little lower before a recovery,
but it probably won't reach the low again.
If you're perturbed about missing Microsoft at its lows, then
consider Intel. I bought at $15.10 last week. It closed on Friday
at $14.90. That's the 52-week low.
I mentioned in previous articles that I've been watching Level 3
Communications after Warren Buffett invested in the company. I
first mentioned the stock when it was trading around $5.50. It's
now trading at $4.
Finally, as always, if you don't know what to buy but just want
to participate in the broad market, I suggest looking at my
Kevlar 500/400 portfolio. It
fell to a value of about $7600 in July, and is now slightly
below that level.
I would understand a degree of caution. This market has been
brutal for two years and just when you think it's ready to turn,
it bites you again. But there is a lot of evidence to suggest
that the next seven months or so will be good ones. Further, the
companies I've identified are solid and should eventually do well.
For current quotes on Microsoft, Intel, and Level 3,
click here.
Return to Articles
|
5–9 reader votes 
10–19 reader votes 
20+ reader votes