Jason Leavitt (Jan 22, 2020) - According to Wayne Whaley, the most predictive period of the year is November 19 to January 19. He considers this period to be the single most reliable
seasonality barometer of forward stock market returns – so much so that
he’s said if he could only make one trade/year based on one indicator,
this is the indicator he’d use. Whaley’s goal was to identify what he called the "kingpin of seasonal
barometers." He stated: "I implored my computer to take a few seconds
to exhaustively study S&P performance over every time period of the
year and determine which time frame’s behavior was proprietor of the
highest correlation coefficient relative to the following year’s
performance."
What he found was there was a high correlation between the S&P
500’s returns between November 19th and the following January 19th and
the S&P’s performance the 12 months following January 19. And since
the 2-month period straddled the turn of the year and the gift
giving season, he called it the TOY Barometer [...] if Nov 19 is on a weekend, use the Monday after the weekend, and if Jan 19 is
on a weekend, use the Friday before). He only considered the price-only
return (no dividends). If the return during this 2-month period was greater than 3%, a
bullish signal was given, and the market was very likely to do well over
the following 12 months. If the return was 0-3%, the signal was
considered neutral, and results were somewhat random and in line with
what is considered average. And if the return was negative, a bearish
signal was given, and returns tended to be very poor.
Since 1950, there have been 36 bullish signals (including the one
that just triggered), 19 neutral signals and 16 bearish signals [as of Jan 22, 2020]. Let’s
look at each signal group.
Bullish Signals: The 35 completed bullish signals have led to gains 33 times the
following 12 months. The losses were in 1987, the year of one of the
biggest single-day crashes in history, and 2018, that year that included
a 20% drop during the fourth quarter. The average and median gains of the 12 months following the bullish
signals were 17.7% and 15.1%. This isn’t much better than the “all
years” stats, but the win rate (94%) is much higher than the “all years”
win rate (73%).
Neutral Signals: There have been 19 neutral signals. The following year was positive
12 times (63%), compared to 73% win rate for “all years.” The overall
average and median returns were 6.0% and 7.1%. But among the “up” years,
the average and median gains were 14.4% and 9.4%, while the “down”
years’ average and median losses were -8.5% and -7.8%. There were
several big up years (1995, 1996, 1998, 2003), and two big down years
(1973, 1977), so even if there is a neutral signal, there’s still a
decent chance the following 12 months will venture far from its January
19 print.
Bearish Signals: There have been 16 bearish signals. Only 6 (38%) of the following
years posted a gain while 10 posted losses – and 6 of those 10 posted
double digit losses. The overall average and median returns were -3.6%
and -6.0%. The “up” years posted average and median gains of 14.6% and
15.5%, while the “down” years posted average and median losses of -14.6%
and -12.9%. So despite the low win rate, when the market does well, it
has the ability to do very well, as was the case this past year.
Summary:
The bullish years have a very high win rate (94% vs 73% for “all
years”). The average gain (17.7%) isn’t much higher than the “all years”
gain (16.6%), so a bullish signal increases the odds of an up year but
doesn’t increase the gain itself.
The bearish years have a low win rate (38%). The gains during those
up years (14.6% vs 16.6% for all years) are very good, but the losses
during the down years are noticeably bigger than when a bullish or
neutral signal is signaled (-14.6% vs -6.2% for bullish years and vs
-8.5% for neutral years). So the odds of a down year are much higher,
and the losses that follow are much bigger.
The neutral years are mixed. The win rate is 63% (vs 72% for “all
years”), with the gains during up years being pretty good (14.2% vs
16.6% for “all years”) and the losses during down years being moderate
(a little worse than bullish years but much better than bearish years).
[...] When a bullish signal is in play, odds heavily favor
solid gains over the following 12 months, but when there’s a bearish
signal, odds favor a down year with a relatively big loss. But
regardless of the signal, “up” years tend to be very good.
Quoted from:
See also:
