How to Trade Stock Market Cycle Predictions
With an endless stream of economic data, earnings results, analyst reports and technical trends to follow, it’s easy to see why so many investors are at a loss to figure out where the market is going at any given time.
But, beyond all of those numbers and readings, there exists a bevy of time-tested events and occurrences which have proven to possess a profound influence over the markets.
In the elusive science of “market cycles” — a trading phenomena that Jeffrey Hirsch, author of The Little Book of Stock Market Cycles describes as “regularly occurring, has a reason to repeat and is driven by a real event.”
While there is almost no limit to the number of ways that Wall Street will try to discern the direction of the market, be it from the length of women’s skirts to the winner of the Super Bowl, Hirsch and other investment pros use these cycles as a guide in conjunction with other data, before making any major decisions.
Dow Theory, a forecasting system devised more than 100 years ago by Wall Street Journal editor Charles Dow is an old analytical approach to stock charts that makes it possible to accurately forecast stock prices by identifying trends.
The upcoming date 11-11-11 is a particularly powerful moneymaker. It says dates with repeating 1’s are called “moneybags” in Chinese feng shui.
The Dogs of the Dow is an investment strategy popularized by Michael O’Higgins, in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.
The Hindenburg Omen is a technical indicator named after the airship that crashed so spectacularly in 1937. According to some, the Hindenburg Omen is the technical pattern that is the most feared by bullish chartists — it’s a technical signal that often predicts an upcoming stock market crash. It is, however, not a guarantee of a crash.
The stock market has a history of performing better in the year-long performance race when it gets off to a fast start. Since 1950, stocks have finished lower for the year only three times after posting gains in January, says the Stock Trader’s Almanac, which created the closely followed “January Barometer” in 1972.
Sam Stovall, chief equity strategist with S&P Capital IQ, has developed the January Barometer Portfolio which looks to sector performances in January for clues of what will happen the following 12 months.
January is traditionally a good time to pick up bargains, in the stock market as well as anywhere else. The “January Effect” is that American stocks rise much more in January than in any other month of the year. Sidney Wachtel discovered the phenomenon in the 1940s, but it wasn’t until the 1970s that anybody took much notice.
Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. There’s a theory that stocks tend to decline in October, because it’s cursed.
Of all the tools one might use to predict a stock market crash in 2013 — planetary alignments and solar particles are not the first options that spring to mind for people but market analyst Arch Crawford has applied his arcane “astro indicators” for 35 years with surprising success.
The Santa Claus Rally is a phenomenon where stock prices in the month of December, generally seen over the final week of trading prior to the new year. The rally is generally attributed to anticipation of the “January Effect“, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year. The Santa Claus rally is also known as the “December Effect.”
Investors who followed the Wall Street saying to “Sell in May and Go Away” have avoided some of the “Biggest Stock Market Plunges” in the Dow Jones Industrial Average Index in more than four decades.
September is the “Worst Month for Stocks” and the reason September has been a dangerous month — companies and company analysts were generally too optimistic early in the year and then slashed their over-optimistic estimates in September, before third quarter earnings announcements season.
The idea that skirt lengths are a predictor of the stock market direction. According to the theory, if skirts are short, it means the markets are going up. And if skirt are long, it means the markets are heading down.
Large stock market advances during the final three years of incumbent candidates’ terms tend to be strongly associated with subsequent landslide victories, says the report from the Socionomics Institute, a research firm in Gainesville, Ga.
The “Super Bowl” stock market predictor forecasts a higher year for stocks if the NFC team or one of the original NFL teams beats the AFC team.
Developed by the Chicago Board Options Exchange in 1993, the CBOE Volatility Index (Chicago Options: ^VIX) is one of the Street’s most widely accepted methods to gauge stock market volatility.
Tags: Analyst Reports, Earnings Results, Economic Data, How to Trade Stocks, Jeffrey Hirsch, Market Cycles, Regularly Occurring Market Cycles, Stock Market Cycle Predictions, Stock Market Cycles, Stock Market Predictions, Technical Trends, The Little Book of Stock Market Cycles