Market Sense and Sentiment

[Bernard Ng]

Something to be studied and applied to our Plan...

http://www.keystonefin.com/planseason.htm

Seasonality Switching

Seasonality Switching was first developed in 1976 by Norman Fosback in the book, Stock Market Logic. Research has shown that the last trading day of the month, the first four trading days of the next month and the two trading days before holidays have historically been highly positive for the stock market. Over the years, Market Logic has identified additional favorable and unfavorable days. The current Market Logic rules are as follows:

Market Logic Seasonality Rules

Rule 1. Always own equities on the last trading day of each month and first four trading days of each month (the ?month-end? period).

Rule 2. If the next-to-last trading day of the month is anything other than the first trading session of the week, hold equities on that day, too. In other words, own equities on both of the last two trading days of the month except when the next-to-last trading day of the month is the first trading day of the week.

Rule 3. Also hold equities on the fifth trading day of the month, unless that fifth day is the first day of the week.

Rule 4. Own equities on the two trading days before each holiday closing (the ?pre-holiday? period).

Rule 5. However, do not own equities on the second day before a holiday closing if that day happens also to be the first trading day of the week.

Rule 6. Continue to own equities on the first day after a market holiday closing if that day is also the last trading day of the week.

Making Seasonality Even Better

Over the years, Monday has been a poor day to be invested in the stock market. Although the NASDAQ 100 has gained 19.8% per year between 1/31/85 and 12/20/00, Monday has still been a net losing day:

TOTAL GAIN 1/31/85 - 12/20/00____________

NASDAQ NASDAQ NASDAQ

100 Composite Industrials

Monday (39.9)% (51.0)% (62.4)%

Tuesday +56.5 +4.9 (24.4)

Wednesday +399.4 +190.7 +187.0

Thursday +85.3 +102.7 +108.1

Friday + 90.3 +176.6 +165.6

Total +591.6% +423.9% +373.9%


Overall, most of the market gains have occurred in the Wednesday-Friday period. Monday and Tuesday have been poor days to invest, particularly for the NASDAQ Industrials (small stocks). Our changes are designed to add days during up markets and delete days during down markets.

Changes to Market Logic Seasonality Rules

Change 1. If market is in an uptrend (Value Line Composite above 4 day moving average), own equities on the third trading day before month-end or a holiday if a Wednesday or Thursday.

Change 2. If market is in an uptrend, own equities on the sixth trading day of the month if a Wednesday, Thursday or Friday.

Change 3. To avoid excessive switching, after the Memorial Day, Thanksgiving and Christmas holiday buys, stay invested through the completion of the end-of-month Seasonality period.

Change 4. If market is in a downtrend and the last trading day of the month is the first trading day of the week, buy on the last trading day of the month (deletes a Friday and Monday). Buy on Friday night if market changes to an uptrend.

Change 5. If market is in a downtrend and fifth trading day of month is the second trading day of a week, sell on the third trading day of the month (deletes Tuesday and Monday).

Change 6. Do not invest in the Seasonality Switch at the end of a calendar quarter if there are no holidays during the period.

Change 7. Do not invest in Seasonality Switching if the Super Aggressive Plan has a sell signal in effect.