Stock Trader's Almanac 2011 (Almanac Investor Series)

192 Pages·2011·4.22 MB·English

by  Jeffrey A. Hirsch

Copyright © 2011 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
Editor in Chief Jeffrey A. Hirsch
Editor at Large Yale Hirsch
Director of Research Christopher Mistal
Graphic Design Darlene Dion Design
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ISBN 13: 978-0-470-55744-0
ISBN 10:0-470-55744-3
10 9 8 7 6 5 4 3 21
Printed in China
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This Forty-Fourth Edition is respectfully dedicated to:
Kenneth L. Fisher
Ken first came to our attention with, The Wall Street Waltz, our
"Best Investment Book of 1988," still one of the best books on the
market we've ever read. His latest book, How to Smell a Rat:
The Five Signs of Financial Fraud (page 114-116), was a New York
Times and Wall Street Journal bestseller. Ken's 1970s theoretical work
developed the Price-to-Sales ratio, a vital component of our stock
picking. Today Ken heads Fisher Investments, a highly-rated $39 billion
money management firm, and for over 25 years has written the
Forbes Portfolio Strategy column. Over three decades of amazingly
accurate stock market forecasting and prescience have made Ken one
of the most influential people on Wall Street. His father, legendary
investor Philip A. Fisher (Common Stocks and Uncommon Profits),
who died in 2004 at the age of 97, must have been quite proud.
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INTRODUCTION TO THE FORTY-FOURTH EDITION
We are pleased and proud to introduce the Forty-Fourth Edition of the Stock Tinder's
Almanac. The Almanac provides you with the necessary tools to invest successfully in the
twenty-first century.
J. P. Morgan's classic retort, "Stocks will fluctuate," is often quoted with a wink-of-the-
eye implication that the only prediction one can make about the stock market is that it will
go up, down, or sideways. Many investors agree that no one ever really knows which way
the market will move. Nothing could be further from the truth.
We discovered that while stocks do indeed fluctuate, they do so in well-defined, often
predictable patterns. These patterns recur too frequently to be the result of chance or
coincidence. How else do we explain that since 1950 all the gains in the market were made
during November through April compared to a loss May through October? (See page 48.)
The Almanac is a practical investment tool. It alerts you to those little-known market
patterns and tendencies on which shrewd professionals enhance profit potential. You will be
able to forecast market trends with accuracy and confidence when you use the Almanac to
help you understand:
n How our presidential elections affect the economy and the stock market—just
as the moon affects the tides. Many investors have made fortunes following the
political cycle. You can be sure that money managers who control billions of dollars
are also political cycle watchers. Astute people do not ignore a pattern that has been
working effectively throughout most of our economic history.
n How the passage of the Twentieth Amendment to the Constitution fathered the
January Barometer. This barometer has an outstanding record for predicting the
general course of the stock market each year, with only six major errors since 1950,
for a 90.0% accuracy ratio. (See page 16.)
n Why there is a significant market bias at certain times of the day, week, month, and year.
Even if you are an investor who pays scant attention to cycles, indicators, and patterns,
your investment survival could hinge on your interpretation of one of the recurring patterns
found within these pages. One of the most intriguing and important patterns is the symbiotic
relationship between Washington and Wall Street. Aside from the potential profitability in sea-
sonal patterns, there's the pure joy of seeing the market very often do just what you expected.
The Stock Trader's A Imanac is also an organizer. Its wealth of information is presented
on a calendar basis. The Almanac puts investing in a business framework and makes
investing easier because it:
n Updates investment knowledge and informs you of new techniques and tools.
n Is a monthly reminder and refresher course.
n Alerts you to both seasonal opportunities and dangers.
n Furnishes a historical viewpoint by providing pertinent statistics on past market performance.
n Supplies forms necessary for portfolio planning, record keeping, and tax preparation.
The WITCH icon signifies THIRD FRIDAY OF THE MONTH on
calendar pages and alerts you to extraordinary volatility due to expiration
of equity and index options and index futures contracts. Triple-witching
days appear during March, June, September, and December.
The BULL icon on calendar pages signifies favorable trading days based
on the S&P 500 rising 60% or more of the time on a particular trading day
during the 21-year period January 1989 to December 2009.
A BEAR icon on calendar pages signifies unfavorable trading days based
on the S&P falling 60% or more of the time for the same 21-year period.
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Also, to give you even greater perspective, we have listed next to the date of every day
that the market is open the Market Probability numbers for the same 21-year period for the
Dow (D), S&P 500 (S), and NASDAQ (N). You will see a "D," "S," and "N" followed by a
number signifying the actual Market Probability number for that trading day, based on the
recent 21-year period. On pages 121-128 you will find complete Market Probability
Calendars, both long-term and 21-year for the Dow, S&P, and NASDAQ, as well as for the
Russell 1000 and Russell 2000 indices.
Other seasonalities near the ends, beginnings, and middles of months, plus options
expirations, holiday periods, and other times are noted for Almanac investors' convenience
on the weekly planner pages. We are not able to carry FOMC meeting dates, as they are no
longer available at press time. Only the first meeting of 2011, the two-day affair on January
25-26, 2011, has been scheduled. However, the rest of the FOMC meeting dates and all
other important economic releases are provided in the Strategy Calendar every month in
our newsletter, Almanac Investor, available at our website www.stocktradersalmanac.com.
As a reminder to long time Almanac readers, the ten years of monthly Daily Dow Point
Changes have moved from their respective Almanac pages to the Databank section toward
the rear of this book. We continue to rely on the clarity of this presentation to observe
market tendencies. In response to newsletter subscriber feedback, we include our well-
received Monthly Vital Stats on the Almanac pages.
The "Notable Events" on page 6 provides a handy list of major events of the past year
that can be helpful when evaluating things that may have moved the market. Over the past
few years our research has been restructured to better follow the rhythm of the year. This has
also allowed us more room for added data. Again, we have included historical data on the
Russell 1000 and Russell 2000 indices. The Russell 2K is an excellent proxy for small and
mid caps, which we have used over the years, and the Russell IK provides a broader view of
large caps. Annual highs and lows for all five indices covered in the A Imanac appear on
pages 149-151. We've tweaked the Best and Worst section, and with the Option Symbology
Initiative now complete, we have "New Option Trading Codes" on page 190.
Pre-presidential election years like 2011 are the most bullish year of the 4-year cycle
with no losing years since 1939 (page 32). On page 34 we show the amazing pattern of how
the Dow has gained 50% on average from the midterm low to the pre-election year high.
"Market Charts of Pre-Presidential Election Years" on page 28 provides a view of the last 21
pre-election years at a glance. First years have been the third worst year in the decennial
cycle for 129 years, but much better when they are also pre-election years and foreign crises
are at bay (pages 26 and 129). A more significant correction in 2010 increases the potential
for greater gains in 2011.
Sector seasonalities have been revamped this year to include several consistent shorting
opportunities, moved to pages 92-96, and expanded to three pages. In response to many
reader inquiries about how and what to trade when implementing the Best Months
Switching Strategies, we detail some simple techniques, including a sampling of tradable
mutual funds and ETFs on page 78. Now that the worst of the global financial crisis, bear
market, and the Great Recession of 2007-2009 is likely behind us, on page 36 we reveal our
brand new projection for the Next Super Boom to start in 2017 and carry the Dow up 500%
to 38,820 by 2025.
We arc constantly searching for new insights and nuances about the stock market and
welcome any suggestions from our readers.
Have a healthy and prosperous 2011!
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NOTABLE EVENTS
2009 2010
May 25 North Korea's 2nd successful nuclear test. Jan 4 World's tallest building opens in Dubai.
Jun 1 Air France Flight 447 crashes, killing all 228. Jan 12 Haiti struck by 7.0 earthquake, widespread
Jun 1 General Motors files for bankruptcy. destruction.
Jun 11 Swine flu deemed global pandemic, Jan 19 Mass. elects Republican Senator,
1st in 40 years. ends Dem's super majority.
Jun 12 Iran presidential election protests and riots. Feb 22 Action Comics # 1. Superman's debut,
sells for record SI mil.
Jun 17 Goldman Sachs first to pay back TARP.
Feb 27 8.8 magnitude earthquake strikes Chile.
Jun 24 Obama signs cash-for-clunkers into law.
Jun 25 Pop icon, Michael Jackson, dies. Mar 23 Landmark healthcare bill signed into law.
Apr 3 Apple iPad released to public.
Jul 4 North Korea conducts ballistic missile test.
Aug 25 Senator Edward Moore 'Ted" Kennedy Apr 6 Toyota fined S16.4 million, largest ever.
dies of cancer. Apr 16 SEC charges Goldman Sachs with civil fraud.
Sep 4 Natural Gas at $2.409, last seen in 2002, crude $70. Apr 14 Icelandic volcano closes European airspace
for 6 days.
Sep 30 2009 federal budget deficit S1.4 trillion,
highest ever. Apr 20 Drilling rig explodes and sinks in Gulf of
Mexico.
Oct 7 Australia 1 st G-20 to raise rates.
May 1 Times Square N.Y. evacuated, car bomb fails
post-financial crisis.
to explode.
Oct 15 Social Security COLA is zero,
May 2 1000-year flood strikes Nashville, TN.
1st in 38-year history.
May 5 Picasso painting sells for record SI06.5 million.
Nov 6 Obama extends unemployment benefits to 99 weeks.
May 5 Greek rioting turns deadly—three die.
Nov 9 Obama extends home-buyer tax credit.
May 6 Dow plunges 650 points in 5 minutes.
Nov 25 Dubai debt crisis.
May 10 €750 billion bailout plan—global markets soar.
Nov 26 U.S. unemployment 10.2%. highest in 26 years.
May 12 Gold trades at new all-time high $ 1244.45.
Dec 8 Early warning on Greece's debt levels flashed.
2011 OUTLOOK
President Obama's first 100 days were quite rocky, with the stock market posting heavy losses as the
2007-2009 bear market bottomed. Over the past year it has been an uphill battle for the new president,
but the stock market rallied swiftly and powerfully, as the president pushed through many of his core
agenda and policy items after some tough political battles. Much to the chagrin of his critics, the contro-
versial liberal chief executive is gaining traction.
As with most of his predecessors, Obama will push hard to pass several other policy initiatives in
2010, including financial regulatory reform, climate change, and energy legislation. These divisive
initiatives could trigger a typical midterm election year correction or bear market. Any hiccups in the
one-year old economic recovery could increase the magnitude of a decline. The Democrats will likely
lose some congressional seats in the midterm elections this fall. If the Democrats lose control of
Congress, it could be a boon for stocks. The combination of a democratic president and a republican
Congress has produced the greatest gains, averaging gains of 19.5% for the Dow since 1949.
2011 is a pre-presidential election year, and there has not been a loser among them since war-torn
1939 (page 32). The Obama political machine is well aware that they will need to begin priming the
pump in 2011 if he is going to have a shot at a second term. If there is a substantial dccline in 2010 and
the Democrats can grease the wheels of the economy, creating millions of jobs; the prospects for a
50% gain from the midterm low to the pre-election year high (page 34)—and Obama's reelection in
2012—increase dramatically.
However, we do not expect the old all-time highs to be left behind forever just yet and expect
several more years of sideways market action, as we experienced in the 1930s and 1940s, and the
1970s and 1980s, before the Next Super Boom is born and the Dow vaults 500% to 38,820 by 2025
(page 36). So, use any significant dips or bear market lows to position yourself for a big rally into
2011 and 2012, but do not get complacent as the secular bear still appears in command.
— Jeffrey A. Hirsch, May 13, 2010
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THE 2011
STOCK TRADER’S
ALMANAC
CONTENTS
10 2011 Strategy Calendar
12 January Almanac
14 January’s First Five Days: An “Early Warning” System
16 The Incredible January Barometer (Devised 1972):
Only Six Significant Errors in 60 Years
18 January Barometer in Graphic Form Since 1950
20 Hot January Industries Beat S&P 500 Next 11 Months
22 February Almanac
24 1933 “Lame Duck” Amendment: Reason January Barometer Works
26 The First Year of Decades
28 Market Charts of Pre-Presidential Election Years
30 March Almanac
32 Pre-Presidential Election Years: No Losers in 72 Years
34 Why a 50% Gain in the Dow is Possible from its 2010 Low to its 2011 High
36 Next Super Boom–Dow 38820 By 2025
38 April Almanac
40 The December Low Indicator: A Useful Prognosticating Tool
42 Down Januarys: A Remarkable Record
44 Top Performing Months Past 601/ Years:
3
Standard & Poor’s 500 and Dow Jones Industrials
46 May Almanac
48 Best Six Months: Still An Eye-Popping Strategy
50 MACD-Timing Triples “Best Six Months” Results
52 Take Advantage of Down Friday/Down Monday Warning
54 Top Performing NASDAQ Months Past 391/ Years
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56 June Almanac
58 Get More out of NASDAQ’s “Best Eight Months” with MACD-Timing
60 Triple Returns, Fewer Trades: Best 6 + 4-Year Cycle
62 First-Trading-Day-Of-The-Month Phenomenon:
Dow Gains More One Day than All Other Days
64 July Almanac
66 2009 Daily Dow Point Changes
68 Don’t Sell Stocks on Monday or Friday
70 A Rally for All Seasons
72 First Month of Quarters Is the Most Bullish
74 August Almanac
76 Aura of the Triple Witch—4th Quarter Most Bullish:
Down Weeks Trigger More Weakness Week After
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78 What To Trade During Best and Worst Months
80 A Correction for All Seasons
82 September Almanac
84 Market Behavior Three Days before and Three Days after Holidays
86 Fourth Quarter Market Magic
88 Market Gains More on Super-8 Days Each Month
Than on All 13 Remaining Days Combined
90 October Almanac
92 Sector Seasonality: Selected Percentage Plays
94 Sector Index Seasonality Strategy Calendar
98 Trading the Thanksgiving Market
100 November Almanac
102 Most of the So-Called “January Effect” Takes Place in the Last Half of December
104 January Effect Now Starts in Mid-December
106 Wall Street’s Only Free Lunch Served before Christmas
108 December Almanac
110 If Santa Claus Should Fail to Call, Bears May Come to Broad and Wall
112 Best Investment Book of the Year: Far From Random
114 Year’s Top Investment Books
118 2012 Strategy Calendar
DIRECTORY OF TRADING PATTERNS AND DATABANK
121 Dow Jones Industrials Market Probability Calendar 2011
122 RecentDow Jones Industrials Market Probability Calendar 2011
123 S&P 500 Market Probability Calendar 2011
124 RecentS&P 500 Market Probability Calendar 2011
125 NASDAQ Market Probability Calendar 2011
126 RecentNASDAQ Market Probability Calendar 2011
127 Russell 1000 Index Market Probability Calendar 2011
128 Russell 2000 Index Market Probability Calendar 2011
129 Decennial Cycle: A Market Phenomenon
130 Presidential Election/Stock Market Cycle: The 177-Year Saga Continues
131 Dow Jones Industrials Bull and Bear Markets Since 1900
132 Standard & Poor’s 500 Bull and Bear Markets Since 1929/
NASDAQ Composite Since 1971
133 Dow Jones Industrials 10-Year Daily Point Changes: January and February
134 Dow Jones Industrials 10-Year Daily Point Changes: March and April
135 Dow Jones Industrials 10-Year Daily Point Changes: May and June
136 Dow Jones Industrials 10-Year Daily Point Changes: July and August
137 Dow Jones Industrials 10-Year Daily Point Changes: September and October
138 Dow Jones Industrials 10-Year Daily Point Changes: November and December
139 A Typical Day in the Market
140 Through the Week on a Half-Hourly Basis
141 Tuesday Most Profitable Day of Week
142 NASDAQ Strongest Last 3 Days of Week
143 S&P Daily Performance Each Year Since 1952
144 NASDAQ Daily Performance Each Year Since 1971
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145 Monthly Cash Inflows into S&P Stocks
146 Monthly Cash Inflows into NASDAQ Stocks
147 November, December, and January: Year’s Best Three-Month Span
148 November Through June: NASDAQ’s Eight-Month Run
149 Dow Jones Industrials Annual Highs, Lows, and Closes Since 1901
150 Standard & Poor’s 500 Annual Highs, Lows, and Closes Since 1930
151 NASDAQ, Russell 1000, and 2000 Annual Highs, Lows, and Closes Since 1971
152 Dow Jones Industrials Monthly Percent Changes Since 1950
153 Dow Jones Industrials Monthly Point Changes Since 1950
154 Dow Jones Industrials Monthly Closing Prices Since 1950
155 Standard & Poor’s 500 Monthly Percent Changes Since 1950
156 Standard & Poor’s 500 Monthly Closing Prices Since 1950
157 NASDAQ Composite Monthly Percent Changes Since 1971
158 NASDAQ Composite Monthly Closing Prices Since 1971
159 Russell 1000 Monthly Percent Changes and Closing Prices Since 1979
160 Russell 2000 Monthly Percent Changes and Closing Prices Since 1979
161 10 BestDays by Point and Percent
162 10 WorstDays by Point and Percent
163 10 BestWeeks by Point and Percent
164 10 WorstWeeks by Point and Percent
165 10 BestMonths by Point and Percent
166 10 WorstMonths by Point and Percent
167 10 BestQuarters by Point and Percent
168 10 WorstQuarters by Point and Percent
169 10 BestYears by Point and Percent
170 10 WorstYears by Point and Percent
STRATEGY PLANNING AND RECORD SECTION
172 Portfolio at Start of 2011
173 Additional Purchases
175 Short-Term Transactions
177 Long-Term Transactions
179 Interest/Dividends Received during 2011/Brokerage Account Data 2011
180 Weekly Portfolio Price Record 2011
182 Weekly Indicator Data 2011
184 Monthly Indicator Data 2011
185 Portfolio at End of 2011
186 If You Don’t Profit from Your Investment Mistakes, Someone Else Will;
Performance Record of Recommendations
187 Individual Retirement Account (IRA):
Most Awesome Mass Investment Incentive Ever Devised
188 Top 300 Exchange Traded Funds (ETFs)
190 Option Trading Codes
191 G. M. Loeb’s “Battle Plan” for Investment Survival
192 G. M. Loeb’s Investment Survival Checklist
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