Year-End Rally: Myth or Money Maker?

Successful trading and investing are based on consistency, patterns, and effective risk management, as well as investor application of strategy, related rules, and procedures.

For many years, traders and investors have relied on traditional patterns, such as support and resistance lines, and various market geometry formations (Elliott wave, Fibonacci, etc.). In my estimation, relatively few traders understand or appreciate the consistency of repetitive seasonal patterns.

The chart below is a weekly seasonal composite chart of the Dow Jones Industrial Average. The chart does not represent any single year; rather it displays the typical year. We have done this by normalizing the data. We have converted the high of each year to 100 and the low of each year to zero to extract what, for lack of a better term, I would call market DNA. I believe the stock chart speaks for itself. It covers over a century of data.

As a prediction tool it suggests October, November and December are the strongest part of each year. Take some time and study the chart. What do you think? Remember, the chart is only a guide. Every year is different and timing indicators must be used in order to jump on the trend with success.