Sunday, February 20, 2011

The Presidents Day Effect

I hope everyone is having an enjoyable President's Day is an interesting reference point for the market. Usually, if the market has been able to rally into President's day, especially closing near the highs...that's a marginally bullish sign for the outcome of the year. However, this time around things are a little more interesting. First of all, we are trading on abysmal volume (potentially the lowest monthly volume in 5 years)  at EXTREMELY stretched prices...and second during EXTREMELY unpredictable times.

In the past history, when we have traded this strongly into this time of year that has bode well for the rest of the year...except when we do so on paltry volume and over extended both of those 1937 and in 1931...the results were spectacular and resulted in over 40% declines for both years. The average return for entire year in which we trade into Presidents day strongly is 14.46%. We are currently up 7% for the year...that leaves us a potential, if the internals for the market were strong, of another 7% gain by the end of the year...or alternatively the potential of a 55% decline, as in 1931, if the market internals are a masquerade.

Here is a chart...

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