Author Archives: Dimitri Speck

     

 

 

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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Seasonax Event Studies

As our readers are aware by now, investment and trading decisions can be optimized with the help of statistics. After all, market anomalies that have occurred regularly in the past often tend to occur in the future as well. One of the most interesting and effective opportunities to increase profits while minimizing risks at the same time is offered by the event studies section of the Seasonax app.

 

A recent event that had quite an impact on certain markets… [PT]

 

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Returns One Can Only Dream Of

When I heard about Bitcoin for the very first time in May of 2011, it traded at eight US dollars.

As I write this, almost exactly six years later on May 20 2017, it has broken through the USD 2,000 barrier for the first time [ed. note: since then it has streaked even higher].

 

Bitcoin, daily: just four trading days after breaking through the USD 2,000 level, Bitcoin reached a peak of USD 2,760 – click to enlarge.

 

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Selling in May, With Precision

If you “sell in May and go away”, you are definitely on the right side of the trend from a statistical perspective: While gains were achieved in the summer months in three of the eleven largest stock markets in the world, they amounted to less than one percent on average. In six countries stocks even exhibited losses! Only in two countries would an investment represent an interesting proposition, as I have shown in the last issue of Seasonal Insights via back-test calculations for the time period 1970 to today.

 

The perennial stock market question: when is the right time? [PT]

 

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An Old Seasonal Truism

Most people are probably aware of the saying “sell in May and go away”. This popular seasonal Wall Street truism implies that the market’s performance is far worse in the six summer months than in the six winter months.

Numerous studies have been undertaken particularly with respect to US stock markets, which confirm the  relative weakness of the stock market in the summer months.

 

May has a bad reputation… rightly so, as it turns out.

 

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