Hirsch, Stock Trader’s Almanac 2014

This year’s Stock Trader’s Almanac, its forty-seventh annual edition, has a new look, at least on the outside. Although it is still spiral bound, it now sports a maroon soft cover with gold embossed lettering and golden spirals.

The inside remains pretty much the same, with a calendar section, a directory of trading patterns and databank, and a strategy planning and (somewhat abbreviated) record keeping section. The calendar section has on facing pages historical data on market performance (verso) and a week’s worth of calendar entries (recto). January’s verso pages, for example, give the month’s vital statistics, January’s first five days as an early warning system, the January barometer (which has had only seven significant errors in 63 years), and the January barometer since 1950 in graphic form. Each trading day’s entry on the recto pages includes the probability, based on a 21-year lookback period, that the Dow, S&P, and Nasdaq will rise. Particularly favorable days (based on the performance of the S&P) are flagged with a bull icon; particularly unfavorable trading days get a bear icon. A witch icon appears on options expiration days. At the bottom of each entry is an apt quotation. There’s about a five-square-inch space in which to write.

As we all know, 2014 is a midterm election year, but what does this mean for investors? Jeffrey A. Hirsch, co-editor of the Almanac, writes that “midterm elections have a history of being a bottom picker’s paradise. In the last 13 quadrennial cycles since 1961, 9 of the 16 bear markets bottomed in the midterm year. … [T]his has provided excellent buying opportunities. … From the midterm low to the pre-election year high, the Dow has gained nearly 50% on average since 1914.” Hirsch anticipates “a good hunk of the next major downturn to transpire in 2014” with a low in the DJIA 12,000 range likely.

We are now in the market’s “magical” quarter where gains over the years have been the greatest and the most consistent. If we take the S&P 500 as our benchmark, it has delivered an average return of 4.0% in the fourth quarter (1949-2012). Compare that to 2.3% for the first quarter, 1.6% for the second, and 0.6% for the third. Looking at the fourth quarter in the context of the presidential cycle, post-election results have averaged 3.1%, midterm a whopping 8.0%, pre-election 3.0%, and election a meager 1.9%.

For those traders who are interested in intra-day trends, the Almanac divides the trading day into half-hour segments and tracks the percentage of time the Dow closed higher in a given half hour than it did in the previous half hour. The positive half-hour segments between 1987 and May 2013 began at 10, 11, 11:30, 12:30, 1, 1:30, 3, 3:30, and the close, with the strongest performances coming from the close, 3 p.m., and 10 a.m. On a daily basis, since 1990 Tuesday has produced the strongest gains although, since the March 2009 bottom, Thursday has taken over the honors.

Investors who appreciate the power of seasonals and who believe that past is prologue will, as usual, relish this Almanac.