It’s that time of year again … time for the most remarkable trade of the year that I know of in the stock market.
I initially came across it about 15 years ago when I built SeasonalTrader, my first financial website. That was in 2001. At that time, the trade was entering its 51st year. It had been profitable 92% of the time since 1950. It had only lost money 4 times in 50 years and had not had a losing year since 1977.
This is now the 66th year of this trade … and the track record is still remarkable. The trade has now been profitable for 60 out of 66 years running – 91% of the time. The trade takes just two and a half months and has an average annual profit of 5.6%.
It’s a simple trade – buy the Dow Jones Industrial Average (DJIA) on October 26th, sell it at the close on January 10th and use a 9% hard stop loss. If the DJIA closes more than 9% below its closing price of October 26th before January 10th, 2017 then exit the trade for a loss. Otherwise, sell it on the close of January 10th.
That’s all there is to it.
Here’s a chart showing the annual profits and losses for this trade back to 1950.
2015 was a losing year for this trade. It lost just under 7%. This trade has only ever had 2 losing years in a row once … back in 1969.
Every year I’ve been aware of this trade, it’s still been hard to pull the trigger on it. There always seems to be something to worry about come October … and this October is no exception.
The stock market has been on an uninterrupted bull run for 7 years now. Can it really continue? The VIX is at its lowest level in decades. How much more complacency can the markets take? On the day this trade started, October 26th, my friend Porter Stansberry published a terrifying and compelling piece on how the US government is digging our financial graves.
Could the US stock market really be 5% or 6% higher than it is today come January 10th? Absolutely it could … and my seasonal signal isn’t the only indicator saying so.
It also sits comfortably above its large volume-at-price support just below 18,000.
My short-term time-cycles are also supporting this seasonal trade. Here’s a look at the composite of a 52-day cycle and a 91-day cycle.
There is always risk and uncertainty in investing and speculation. There wouldn’t be the opportunity to win if there weren’t also the possibility of losing.
Smart speculation with good risk management and consistent performance, however, has an excellent chance of success.
Have a great weekend,