Author Archives: Dimitri Speck

     

 

 

The Gift that Keeps on Giving

Every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.

 

Unbeknown to many, Santa Claus paid a high price for enriching investors [PT]

 

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Peculiar Behavior

In the last issue of Seasonal Insights I have shown that the gold price behaves quite peculiarly in the course of the trading week. On average, prices rise almost exclusively on Friday. It is as though investors in this market were mired in deep sleep for most of the week.

 

The title of this blog post is a play of words on the title of an early Wim Wender movie, The Goalkeeper’s Fear of the Penalty, which in turn is based on a famous novel by Peter Handke (sometimes the title is also translated as “The Goalie’s Anxiety at the Penalty Kick”) [PT]

 

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Known and Unknown Anomalies

Readers are undoubtedly aware of one or another stock market anomaly, such as e.g. the frequently observed weakness in stock markets in the summer months, which the well-known saying “sell in May and go away” refers to. Apart from such widely known anomalies, there are many others though, which most investors have never heard of. These anomalies can be particularly interesting and profitable for investors – and there are several in the precious metals sector as well.  Today I am going to introduce one of those to you.

 

As Donald Rumsfeld, former secretary of defense knew, there are things we know we know, things we know we don’t know, and things we don’t know we don’t know (unfortunately he neglected to consider that there are also things we think we know that just ain’t so, such as “Saddam has WMDs” – but let’s not digress). Anyway, Seasonax knows them all! [PT]

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Japanese Market About to Break Out

The Japanese stock market is quite unique: it would need to rally by approximately 80% to reach its former historical peak. What’s more, said peak was attained on the final trading day of 1989, more than 25 years ago. In short, Japanese stocks have been anything but a good investment in recent years.

Conversely this means that the market has a lot of potential if it were to return to its former heights. It also means that the Japanese market hasn’t mirrored the excesses evident in many other stock markets.  The chart below shows the Nikkei 225 since its late 1989 peak.

 

Nikkei 225, 1989 – 2017. Japanese stocks have entered a new uptrend. Japanese stocks are actually still quite cheap compared to current global standards. The advance looks quite good so far from a technical perspective, but unfortunately the same could be said of the 2003 to 2007 rally, which eventually fell prey to the bursting of the mortgage credit bubble in the US. While Japan’s market decoupled from foreign markets in the 1990s and remained mired in a secular bear market, it has shown no ability to decouple in the other direction since the 1970s (in the global bear market decade of the 1970s, it outperformed the DJIA roughly by a factor of 7.5). Since the BoJ is currently the biggest major currency molester in the world, a decoupling of the Japanese market in the event of a bear market taking hold elsewhere can probably not be ruled out – but we would expect that the market would at least be dragged down initially as well. This caveat has to be kept in mind when contemplating the (otherwise powerful) seasonal tendencies of the Nikkei discussed below. [PT] – click to enlarge.

 

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Bad Reputation

Years ending in 7, such as the current year 2017, have a bad reputation among stock market participants. Large price declines tend to occur quite frequently in these years.

 

Sliding down the steep slope of the cursed year. [PT]

 

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October is the Most Dangerous Month

The prospect of steep market declines worries investors – and the month of October has a particularly bad reputation in this respect.

 

Bad juju month: Statistically, October is actually not the worst month on average – but it is home to several of history’s most memorable crashes, including the largest ever one-day decline on Wall Street. A few things worth noting about 1987: 1. the crash did not presage a recession. 2. its extraordinary size was the result of a structural change in the market, as new technology, new trading methods and new hedging strategies were deployed. 3. Bernie (whoever he was/is) got six months.

 

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Crypto-Statistics

In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.

 

Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to us like it could be the beginning of a higher degree correction, mainly because it so far proceeds with greater verve than previous corrections over the past year. Besides, the recent rally in this trading sardine seems rather stretched, and the term stretched by itself actually sounds  a bit inadequate as a descriptor. It needs an adverb… insanely might do. [PT] – click to enlarge.

 

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Recurring Phenomena

Many market participants believe simple phenomena in the stock market are purely random events and cannot recur consistently. Indeed, there is probably no stock market “rule” that will remain valid forever.

However, there continue to be certain statistical phenomena in the stock market – even quite simple ones – that have shown a tendency to persist for very long time periods.

 

This chart illustrates a “rule that changed” – for eight decades (actually longer, but on this chart we can see the final eight decades during which the rule applied) the dividend yield on the S&P 500 Index would never fall much below 3%. Whenever that level was reached, everybody knew a correction or a bear market was imminent. This changed profoundly in the mid 1990s. The culprit: massive monetary inflation. [PT] – click to enlarge.

 

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Suspicion Asleep

You have probably noticed it already: stock market volatility has recently all but disappeared. This raises an important question for every investor: Has the market established a permanent plateau of low volatility, or is the current period of low volatility just the calm before the storm?

 

All quiet on the VIX front… what can possibly happen? [PT] – click to enlarge.

 

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Historians of the Future

Every investor makes trading decisions based on what happened in the past – there is no other way. What really interests us is the future though. After all, what happens in the future ultimately determines investment success.

 

When in doubt, you can always try to reach the pasture…  In Human Action, Ludwig von Mises described stock market speculators as akin to “historians of the future”. This is without a doubt the most trenchant definition of speculators anyone has ever come up with. What Mises wanted to convey is that the skills of speculators are of a thymological nature, i.e.,  similar to historians, they have to be aware of the data and have to be able to apply “understanding” in order to be successful in their task. The meaning of understanding in this context is probably best explained by an example: a historian may look at the historical data known about an important historical figure, such as e.g. Quintus Fabius Maximus Verrucosus,  best known by his nickname Cunctator (“the delayer” – this was originally meant to be an insult). One could simply list all the battles the Cunctator avoided, the guerrilla-type tactics he employed to harass Hannibal’s troops, the battles he decided to join, and so on. But a mere listing of these facts would do little to help us grasp his motives, his personality, the pressures he was subject to, his political goals, his influence on posterity, etc. This is where the historian’s real task begins. If he has the ability to impart a proper understanding of the man and his times, he has succeeded as a historian. The job of speculators is very similar: they have to know the data (which necessarily describe the past) and use understanding in order to so to speak paint an image of the market’s future history before their mind’s eye. And while this future-oriented faculty of understanding is a sine qua non for successful speculation (note that “speculation” actually encompasses all types of entrepreneurial activity, no negative connotation is implied by the term), it could not possibly be applied without knowledge of the data and patterns of the past. [PT]

 

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Old Truism

Readers are surely aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.

And the saying is justified. In my article “Sell in May and Go Away – in 9 out of 11 Countries it Makes Sense to Do So” in the May 01 2017 issue of Seasonal Insights I examined the so-called Halloween effect in great detail. The result: in just two out of eleven international stock markets does it make sense to invest during the summer months.

 

October meetings after you forgot to sell in May [PT]

 

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Some Things Actually Go Up Before and During the Fall…

In recent issues of Seasonal Insights I have discussed two asset classes that tend to suffer  performance problems in most years until the autumn, namely stocks and bitcoin.

I thought you might for a change want to hear of an asset that will be in a seasonal uptrend over coming months.

 

Many things, including bitcoin, stocks and leaves tend to fall in the aptly named fall… but some things actually start to fly…

 

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      The Gift that Keeps on Giving Every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.   Unbeknown to many, Santa Claus paid a high price for enriching investors [PT]   I want to show you the Santa Claus rally in the German DAX Index as an example. Price moves are often...
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