5 Secret Cycles for Windfall Profits

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Author: Brianne Fisher
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5 Secret Cycles for Windfall Profits

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5 Secret Cycles for Windfall Profits

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LMOST since the start of trading, traders and investors have been crunching numbers and analyzing the calendar, looking for predictable patterns within the market to give them an edge over other investors. As technology grows more powerful, we’ve found new ways to parse the incredible amounts of data that have been accumulated. Working through all the data and the various studies that have been conducted, we have unearthed a treasure chest of lucrative opportunities to ramp up the growth of your wealth.

The 17.6-Year Market Cycle As stocks climb to multiyear highs, with the media crowing that it shows no signs of slowing down, it’s easy for investors to get caught up in the excitement — and the greed — of the moment. But it’s important to remember that stocks do not go up in a straight line. Big falls can and will occur when you least expect them. Greed can blind you. You may be in a rush of adrenaline, expecting more double- and triple-digit returns, and completely miss the warning signs that a stock market trend is about to reverse. But the stock market, despite its volatility, is cyclical … which allows you the opportunity to profit (and even multiply your profits) no matter what direction it takes. It shouldn’t surprise us that the market is cyclical … after all, much of our lives are cyclical … from the rising and setting of the sun to the four seasons of spring, summer, fall and winter. The market goes up (bull) and down (bear) over time. Bears and bulls take turns ruling the stock market, with repeating cycles visible to those who pay attention. These alterations come approximately every 17.6 years. Each cycle consists of increments of 2.2 years that correspond to major cyclical stock market turning points such as 1929, 1974, 1987, 2000, 2007, 2009 and beyond. So while the macroeconomic trend may be bearish, that same 17.6-year span may see increments of bullishness. Although Kerry Balenthiran laid claim to this 17.6-year cycle of alternating bears and bulls (modestly calling it the “Balenthiran Cycle”), he’s not the first one to notice the pattern. Jim Rogers noted: “It looks as if God himself were a trader who enjoyed playing the stock market for 18 years or so and then switched to futures, until he got bored again after another 18 years or so and went back into the stock market.” Even the Oracle of Omaha, Warren Buffett, noticed the significance of a 17-year time period in the stock market: “I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like they’ve performed in the past 17.”

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2015 2013

2011

+2.2 Years

2018, 1982 +2.2 Years

+4.4 Years

+2.2 Years

+2.2 Years +2.2 Years

1989

+4.4 Years

2009 +2.2 Years 2007

Bull Market

1987

+2.2 Years

+4.4 Years

Bear Market

+4.4 Years

+2.2 Years 2002

1993

1996

2000

And history itself proves the cyclical nature of the market. Looking back over the past 100 years, you can see that the stock market has alternated bear and bull markets roughly every 17 years: • 1932 – 1949 Bear Market: This 17-year period saw the Great Depression, the 1937 crash and World War II. Despite the upward trajectory, the bottom formed in 1949 remained 60% below its 1929 top. • 1949 – 1966 Bull Market: This was the so-called “Golden Age” of postwar reconstruction, with the Dow appreciating over 500% in a clear bull-market cycle. • 1966 – 1982 Bear Market: A short 16.5-year cycle, the market stayed relatively flat, but still closed approximately 25% down from its 1966 top. • 1982 – 2000 Bull Market: During one of the strongest bull markets in history, the Dow appreciated over 1,400%, reaching its historic top in January of 2000. • 2000 – 2017 Bear Market: The market is actually poised to break the cycle. However, if the market holds to this cycle, we are facing a painful sell-off in 2017. As of January 2017, the S&P 500 Index is sitting roughly 49% above its 2000 highs. To put the market back on track to match the cycle, the market will need to sell off by 49% before beginning to rebound in 2018. This (approximately) 17.6-Year Market Cycle could have big implications for your portfolio. With the 17.6-Year Market Cycle before you, you can take steps to protect your portfolio. Never again

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will you be at the mercy of the markets (or of the talking heads at media companies) as you work to protect your nest egg. By being aware of these long-term secular cycles, you’ll be better equipped to ensure that you have the right strategy for the prevailing market conditions. And you’ll be better able to multiply your profits when you can see what’s on the investment horizon. Just think: While most people will continue to eke out a small return from the stock market — leaving their retirement at the risk of another 50% stock market crash — you’ll be wise to the patterns of Wall Street, securing your returns ahead of time.

The Presidential Cycle The various news agencies overflowed with updates and prognostications as the bitter battle between Donald Trump and Hillary Clinton continued during their fight for the presidency in 2016. Of course, we all know how that ended. But despite the views of various talking heads, the stock market has its own take on the presidency. In fact, the stock market has a pattern of reacting poorly to a U.S. president’s eighth year in office — and it doesn’t seem to have anything to do with political party, platforms or policies. As noted by J.C. O’Hara, Chief Market Technician at FBN Securities, this trend goes all the way back to 1920, with the Dow Jones Industrial Average (DJIA) falling, on average, 15% during the last year of each two-term presidency. Check out the chart below.

Dow Jones in 8th-Year Presidents’ Terms -1.00% -3.00% -5.00% -7.00% -9.00% -11.00% -13.00% -15.00% Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

-17.00%

The trend was spotted in 2008, George W. Bush’s final year in office, with the collapse of the U.S. housing market. And Bill Clinton’s eighth year in office, 2000, coincided with the tech bubble burst.

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According to StockTradersAlmanac.com, here’s where the DJIA stood during the past seven presidential eighth years: • Down 32.9% in 1920 • Down 12.7% in 1940 • Down 9.3% in 1960 • Up 2.6% in 1988 • Down 6.2% in 2000 • Down 33.8% in 2008 • Up 16.24% in 2016 Typically, stocks will decline immediately, rally for a few months and then decline further as the election nears. Indeed, five of the last six election years with losses greater than 5% were in the eighth year of a presidential term. The S&P 500 has also reflected a troubling pattern. An investment strategist at BMO Capital Markets, in 2015, studied economic data back to 1928. He found that presidential election years have produced an average S&P 500 annual gain of 7%, while the average is 7.5% for all years. So for election years in general, there wasn’t much of a difference. However, he then isolated election years in which a new president must be elected. The eighth year of a presidential term would fall under this umbrella, of course. He found that the S&P 500 lost, on average, 4% during such years. What is the reason for this predictable market behavior? It’s hard to say for certain, but one thing investors hate is uncertainty. During the last year of a two-term president’s term, we know that president, for better or worse, cannot be re-elected. What’s more uncertain than new leadership, new policies and new taxes?

The January Barometer There is a popular saying among investors on Wall Street: Sell in May and go away. But what if you could cut that prediction by about five months? What if, instead of waiting until May, you had an early warning indicator telling you how the rest of the year was going to pan out? Pioneered in 1972 by Yale Kirsch, the January Barometer does just that … and its popularity has given rise to its own catchphrase: As January goes, so goes the year. Dating back to 1934, the January Barometer has successfully predicted the direction of the S&P 500, Dow Jones Industrial Average and the Nasdaq Composite every year, save nine anomalies. If you’re keeping track at home, that’s an 88.5% accuracy ratio!  Why January? Aside from being the start of the year, there are many factors that make January an important predictor for market direction. U.S. presidents are inaugurated, the new U.S. Congress convenes, Wall Street analysts roll out their forecasts for the year, finalized holiday shopping figures are released into the wild and the impact of the Santa Claus rally is digested.

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While all of these factors contribute to the January Barometer’s effectiveness in predicting market direction, the convening of a new Congress is where the indicator claims its roots, according to Yale Kirsch. In 1933, the 20th Amendment, or the “Lame Duck” amendment, bumped up the date on which congressmen took office. Previously, newly elected senators and representatives did not take office until December the following year. The result was a 13-month lame duck session. Since 1934 and the passage of the 20th Amendment, Congress has convened in the first week of January … including those members newly elected in November. Inauguration Day was also moved up from March 4 to January 20. As a result, investors are bombarded with both a new Congress and a presidential State of the Union where the annual budget and national goals are laid out … and Wall Street’s reaction sets the tone for the year.  Accuracy and Anomalies Since the inception of the January Barometer, there have been only nine anomalies and nine flat years (plus or minus 5%). Of those anomalies, military action was influential (Vietnam in 1966 and 1968, 9/11 in 2001, Iraq in 2003), while several others were the result of Fed manipulation (QE2 in 2010, QE3 in 2014) or midyear government policy shifts (the Employment Act of 1946, where Congress overrode a presidential veto, and the $12 billion Marshall Plan). Even including these nine anomalies, the January Barometer’s accuracy ratio is 88.5% for the 78-year period. Including the nine flat years, the ratio is still an impressive 76.9%.

The January Barometer vs. the Rest of the Year Monthly S&P Barometers Accuracy Ratio Since 1938 January February March April May June July August September October November December

Calendar Year

11-Month

12-Month

76.9% 64.1% 69.2% 67.9% 61.5% 66.7% 60.3% 62.8% 66.7% 55.1% 62.8% 67.9%

69.2% 62.3% 57.1% 62.3% 51.9% 59.7% 54.5% 51.9% 50.6% 45.5% 57.1% 61.0%

71.4% 63.6% 53.2% 62.3% 54.5% 55.8% 54.5% 53.2% 50.6% 49.4% 57.1% 58.4%

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Monthly Dow Barometers Accuracy Ratio Since 1938 January February March April May June July August September October November December

Calendar Year

11-Month

12-Month

80.8% 61.5% 64.1% 62.8% 56.4% 60.3% 56.4% 64.1% 60.3% 52.6% 60.3% 70.5%

69.2% 58.4% 54.5% 53.2% 51.9% 57.1% 53.2% 50.6% 45.5% 45.5% 58.4% 54.5%

64.9% 61.0% 54.5% 51.9% 54.5% 57.1% 54.5% 57.1% 46.8% 53.2% 57.1% 55.8%

Monthly Nasdaq Barometers Accuracy Ratio Since 1971 January February March April May June July August September October November December

Calendar Year

11-Month

12-Month

68.9% 60.0% 66.7% 73.3% 68.9% 60.0% 60.0% 57.8% 75.6% 55.6% 75.6% 57.8%

68.9% 61.4% 56.8% 59.1% 56.8% 59.1% 54.5% 50.0% 54.5% 43.2% 63.6% 63.6%

65.9% 56.8% 52.3% 59.1% 61.4% 59.1% 52.35 52.3% 52.3% 52.3% 63.6% 63.6%

Sell in May and Go Away “Sell in May and go away” (also known as the Halloween Indicator) might sound like charming folk wisdom, but the old investing adage is a well-documented seasonal trend with historical data to back it up. As an investor, you’ve likely heard the phrase bandied about, particularly in the first quarter, and more so when the S&P 500 is starting to slump in early May. In fact, this is one of the market’s more well-known calendar effects. The adage is pulled from an English saying: “Sell in May and go away, and come on back on St. Leger’s Day,” which refers to the custom of mid-20th century English stockbrokers and the other aristocrats, who

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liked to leave London during the oppressively hot summer months to vacation in the countryside — largely ignoring their investment portfolios. While resting up, they enjoyed attending summer leisure activities in droves, such as the Royal Ascot racing meet. The final horse race of the season took place in mid-September — named St. Leger’s Day — so those vacationing stockbrokers typically returned to work in its wake. In turn, the market back in those days was basically flat over the summer months. Now, that’s all well and good, but I hear plenty of people wonder: Why are we still listening to that old English adage? Times have certainly changed, so is that still a sound investing strategy? Well, that adage has persisted throughout the decades because that seasonal trend still shows signs of holding true today. Many American traders nowadays usually vacation between Memorial Day and Labor Day in a mimicry of that old English trend. As a result, there are times when stocks don’t climb very high during the summer months. So, as the name of the strategy suggests, you want to be out of the market in May — when stocks start underperforming. Then you want to stay out for about six months because stocks tend to continue disappointing until about October 31 (thus the reason for this strategy’s alternative name, the Halloween Indicator). In fact, it’s worth noting that some of the worst stock crashes in history have occurred in October: There was the crash in October 1929 in which the market plummeted 24% in two days. Then on October 19, 1987, the Dow fell 22%. And more recently, in October 2008, the Dow dropped 22% over the course of eight trading days. (Overall, though, October isn’t the worst-performing month; that notoriety goes to September.) After Halloween, however, stocks start performing again — historically delivering the bulk of their gains until about May 1, when they return to their slump. This period — between November and April — is when you want to be back in the market. By looking at historical market performances going back to 1950, it’s clear that there’s something to this tactic, and that it’s certainly possible to outperform the typical buy-and-hold strategy. See, if you go back to 1950, you’ll notice that the overall stock market makes the majority of its gains from November to April, and then it goes sideways from May through October. According to the Stock Trader’s Almanac, since 1950 the Dow Jones Industrial Average has had an average gain of 7.5% during the November-through-April period and a gain of only 0.3% from May through October. A $10,000 investment would have been turned into a nice $838,486 if you stuck to the November-toApril time frame. If you only invested from May through October, you would have been stuck with a $221 loss. Like any trend, though, it’s not perfect. For one, there are added transaction costs and tax implications for jumping in and out of equities. And the seasonality doesn’t always pan out every year. In fact, it’s less pronounced in election years. There are also, of course, ways to capitalize on this summer slump that don’t mean sitting on the sidelines for six months. For example, this may be the time to start considering sectors that tend to combat seasonal downtrends, such as consumer staples and health care, which are traditional defensive sectors that see steady demand no matter the cycle. Since 1990, consumer staples have gained 4.6% and health care has gained 4.9% from May through October, even though the S&P 500 has gained only 1.5%.

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All in all, though, if you’re look for a strategy that has a long history of consistently delivering, “sell in May” is a good, safe bet.

Worst Six Months for Stocks 40.00%

–– Dow Jones, November – May

30.00%

–– Dow Jones, May – November

20.00% 10.00% 0.00% -10.00% -20.00% 2005

2010

2015

This chart illustrates the performance of the Dow Jones from 2000 to 2015. As you can see, stocks tend to underperform from May through November (as shown by the red line) and they tend to outperform from November through May (as shown by the green line).

The Super 8 Trading Days Cycle What if I told you in order to beat the market, you needed to trade only eight days per month, and you could relax the other 13? I know it seems a little unlikely. How could you possibly know exactly which days to trade each month? It has been statistically proven that there are eight specific days that outperform for the Dow Jones Industrial Average every month.  First Trading Day of the Month The first trading day of the month has historically proven to be a consistently strong day for the Dow Jones Industrial Average compared to the rest of the trading days. In fact, from September 2, 1997, through May 15, 2015, the Dow gained an astounding 10,650.14 points, and 49.9% of those points were earned on the 213 first trading days of the month, while the other 50.1% was racked up over the other 4,242 trading days. In other words, the first trading day of the month averages a return of 24.96 points, while the other trading days of the month average only 1.26 points.  End and Beginning of the Month Many traders are aware that some of the strongest days each month are the last three trading days of the month flowing straight into the first two trading days of the new month. The fact is that no matter our attempts to be original and not follow the herd, most individuals and institutions tend to move money into the market at the beginning or end of the month. It’s the monthly settling of the books.

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As a result, the fresh influx of cash investing into a variety of stocks — and particularly the perennial favorite blue-chip stocks — results in an overall lift for the market. This has been happening for decades, and “anticipators” or “front-running traders” have learned to take advantage of this market anomaly by jumping into positions just ahead of this influx and getting back out again at the end of that five-day window to snag some quick profits. But that’s only part of the trading window. You’re missing out on the other three days.  Midmonth Bump The other part of this upswing surprisingly happens midmonth and has developed only in the past few decades with the surge in popularity of 401(k)s, IRAs and other savings plans. The majority of employees who participate in savings plans such as a 401(k) are typically paid twice a month, with one of those paychecks hitting at the middle of the month. As the funds are pulled out of an employees’ paycheck, they are funneled into one of these savings plans. And when the money hits the IRA or 401(k), it is then invested in the market — whether directly into stocks or indirectly through a mutual fund. As a result of this midmonth flow into savings plans, the ninth day through the 11th of the month also see stronger-than-average performance when compared to the rest of the month. Below you can see an example of the trading days that you would use in a month to take advantage of the Super 8 Trading Days Cycle. Sample Calendar of Super 8 Trading Days Sunday

Monday

Tuesday

Wednesday 1

Thursday 2

Friday 3

Saturday 4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

(9th trading day of the month)

(10th trading day of the month)

(11th trading day of the month)

19

20

21

22

23

24

25

26

27

28

29

30

Looking at the returns for the Dow Jones Industrial Average over the last nine years, you can see that playing the Super 8 Trading Days Cycle has worked in six of the past nine years, with it falling short in 2009, 2013 and 2014.

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2007

Total Return Average per Month

2008

Super 8

Rest of Month

Super 8

Rest of Month

Super 8

Rest of Month

11.56% 0.96%

-1.96% 0.16%

9.85% -0.82%

-31.79% -2.65%

0.71% 0.06%

23.21% 1.93%

2010

Total Return Average per Month

2011

2012

Super 8

Rest of Month

Super 8

Rest of Month

Super 8

Rest of Month

5.82% 0.49%

4.74% 0.40%

13.93% 1.16%

-5.68% -0.47%

6.77% 0.56%

0.35% 0.03%

2013

Total Return Average per Month

2009

2014

2015

Super 8

Rest of Month

Super 8

Rest of Month

Super 8

Rest of Month

9.45% 0.79%

14.00% 1.17%

-0.73% -0.06%

10.60% 0.88%

5.77% 0.48%

-8.24% -0.69%

Historically, the Super 8 Trading Days Cycle has been the strongest when the market has a bullish bias.

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Banyan Hill P.O. Box 8378 Delray Beach, FL 33482 USA USA Toll Free Tel.: (866) 584-4096 Email: http://banyanhill.com/contact-us Website: www.banyanhill.com LEGAL NOTICE: This work is based on what we’ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Banyan Hill Publishing expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. Also, please note that due to our commercial relationship with EverBank, we may receive compensation if you choose to invest in any of their offerings. (c) 2017 Sovereign Offshore Services, LLC. All Rights Reserved. Protected by copyright laws of the United States and treaties. This Newsletter may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Banyan Hill Publishing. P.O. Box 8378, Delray Beach, FL 33482 USA. (TEL.: 866-584-4096)

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