The Down Jones Annual Seasonal Trends
Here’s a look at the Dow Jones Index’s annual seasonal trends.
This is a simple seasonal chart, not one of the Factor Seasonal Trend charts for the Dow.
It’s clear from this chart why so many traders hold to the maxim, “Sell in May and go away.”
Because the six most bullish months of the average year are November, December, January, March and July.
Most of these reflect months when larger amounts of cash flow into the market. One explanation of the Dow Jones’ spring rally is that investors become flush with cash after the close of the fiscal year when businesses get their final profit numbers for the year… bonuses are paid out … and tax refunds are issued.
The November-December bullish bias is often attributed to what happens at Wall Street’s fiscal year end on September 30th. Many mutual fund accounts automatically re-invest dividends at the end of the year at the end of the fiscal year – sending an ocean of money into the market at the same time of year.
Plus, this is when mutual funds distribute capital gains and dividends. All this money going back out into the hands of investors gets flooded into the market and driving it up.
But we see the summer months in the Dow Jones Index, which lack a major influx of cash, trend sideways.
These driving forces of the market explain why it’s so important to examine the Factor Seasonal Trends, like the Business Cycle Factor Seasonal Trend which shows how the Dow Jones, other major indexes and individual stocks trend in recessions compared to expansions.
Because in recessions, the money driving up the bullish months is limited, reduced or altogether removed cutting the legs out from under traditional rally periods.
Without examining the Factor Seasonal Trends and tracking and analyzing whether the Dow Jones and other indexes are CURRENTLY following their established seasonal trends traders are essentially flying blind.
When the data is available, why not use it?