Thursday, October 14, 2010

Hirsch, Stock Trader’s Almanac, 2011

As the leaves change color we not only savor the glorious sight but look forward to 2011. Once again, for the forty-fourth time, the Hirsch Organization offers us the Stock Trader’s Almanac (Wiley, 2011). Under the editorship of Jeffrey A. Hirsch, the almanac continues its familiar format. Spiral bound, printed on sturdy stock, and now 192 pages long, it includes a calendar section and an index data section. On the recto pages of the calendar section are entries for a week, including the market probability numbers each day for the Dow, S&P 500, and NASDAQ as well as historical performance highlights and quotations. On the verso are well-documented studies.

There is a plethora of data for anyone with the slightest interest in calendar effects on market prices. From the classic January barometer to the impact of the presidential cycle, the almanac lays out track record after track record. Investors should be comforted to know that “there hasn’t been a down year in the third year of a presidential term since war-torn 1939, Dow off 2.9%. The only severe loss in a pre-presidential election year going back 100 years occurred in 1931 during the Depression.” (p. 32)

The almanac’s prediction of Dow 38820 by 2025 may be a little over the top, though it certainly would be loverly. The case for this forecast presumes that we exit Iraq and Afghanistan in a timely fashion, that we begin to experience inflation, and that enabling technologies such as energy technology and/or biotechnology create “major cultural paradigm shifts and sustained prosperity.” (p. 36) Alas, don’t expect a straight line to this target; if the market follows the pattern of 1974 through the first half of 1982 we may be in for another seven relatively lean years before takeoff.

For those who have a shorter time frame and want to play both sides of the market the almanac provides data on seasonal corrections in the Dow and offers a sector index seasonality strategy calendar. Those in search of a very short-term trading strategy might explore Wall Street’s only “free lunch.” And those who simply love “best” and “worst” data can have a field day. My personal favorite: the trading day in 2011 with the highest chance of the Dow Jones Industrial Average rising, based on data from January 1953 to December 2009, is my birthday! (Perhaps my parents were market timers.)

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