Zeev's Turnips Patch-No Politics (ZEEV)

[TJ Parker]

well, perhaps which goes where when depends on external factors. here's a data point, from marc faber's site, on historical observations on the presidential cycle and august rallies.

Still, we have to avoid being overly bearish and selling short stocks too aggressively right now for several reasons. Near term the market is somewhat over-sold and the presidential cycle, which tends to produce a rally starting this August, may come into play. According to Bob Hoye (www.institutionaladvisors.com), Ned Davis Research Inc. has done some excellent work on seasonal, presidential, and decennial stock market patterns that are valuable when assessing the upside potential. Based upon data from 1900 through 2000, the best results occurred when the incumbent Republican Party won the election. The worst results were when the incumbent party lost. The lesson is to be cautious if it looks like a Democratic victory.

According to Bob Hoye, ¨the end of August is the optimum point from which the two patterns begin to deviate. Generally there is an interim high mid-August as the markets go through a period of hesitation leading up to Labor Day. Once the Republican National Convention (Aug 30th to Sept 2nd) is concluded, the market will likely cast its vote as to the outcome of the election. History has shown that you want to go with whichever trend becomes dominant following Labor Day”. From the figure below (courtesy Bob Hoye), we can clearly see that in most election years, a rally got underway sometime in August and, therefore, given the current oversold position of the stock market the near term odds do not particularly favor to be heavily short the stock markets.

[Charts]

Moreover, considering the likelihood that the economy and corporate profits will likely disappoint further, I think that bonds may have begun a medium term bear market rally, which may carry long term bond prices up by another 5% or so.


http://www.gloomboomdoom.com/gbdreport/indexgbdreport.htm