We are pleased and proud to introduce the Forty-Third Edition of the Stock Trader's Almanac. The Almanac provides you with the necessary tools to invest successfully in the twenty-first century.
J. P. Morgan's classic retort, "Stocks will fluctuate," is often quoted with a wink-of-the-eye implication that the only prediction one can make about the stock market is that it will go up, down, or sideways. Many investors agree that no one ever really knows which way the market will move. Nothing could be further from the truth.
We discovered that while stocks do indeed fluctuate, they do so in well-defined, often predictable patterns. These patterns recur too frequently to be the result of chance or coincidence. How else do we explain that since 1950 practically all the gains in the market were made during November through April compared to almost nothing May through October? (See page 48.)
The Almanac is a practical investment tool. It alerts you to those little-known market patterns and tendencies on which shrewd professionals enhance profit potential. You will be able to forecast market trends with accuracy and confidence when you use the Almanac to help you understand:
How our presidential elections affect the economy and the stock market—just as the moon affects the tides. Many investors have made fortunes following the political cycle. You can be sure that money managers who control billions of dollars are also political cycle watchers. Astute people do not ignore a pattern that has been working effectively throughout most of our economic history.
How the passage of the Twentieth Amendment to the Constitution fathered the January Barometer. This barometer has an outstanding record for predicting the general course of the stock market each year, with only five major errors since 1950, for a 91.5% accuracy ratio. (See page 16.)
Why there is a significant market bias at certain times of the day, week, month, and year.
Even if you are an investor who pays scant attention to cycles, indicators, and patterns, your investment survival could hinge on your interpretation of one of the recurring patterns found within these pages. One of the most intriguing and important patterns is the symbiotic relationship between Washington and Wall Street. Aside from the potential profitability in seasonal patterns, there's the pure joy of seeing the market very often do just what you expected.
The Stock Trader's Almanac is also an organizer. Its wealth of information is presented on a calendar basis. The Almanac puts investing in a business framework and makes investing easier because it:
Updates investment knowledge and informs you of new techniques and tools.
Is a monthly reminder and refresher course.
Alerts you to both seasonal opportunities and dangers.
Furnishes a historical viewpoint by providing pertinent statistics on past market performance.
Supplies forms necessary for portfolio planning, record keeping, and tax preparation.
Also, to give you even greater perspective, we have listed next to the date every day that the market is open the Market Probability numbers for the same 21-year period for the Dow (D), S&P 500 (S) and NASDAQ (N). You will see a "D," "S," and "N" followed by a number signifying the actual Market Probability number for that trading day, based on the recent 21-year period. On pages 121-128 you will find complete Market Probability Calendars, both long-term and 21-year for the Dow, S&P, and NASDAQ, as well as for the Russell 1000 and Russell 2000 indices.
Other seasonalities near the ends, beginnings, and middles of months, plus options expirations, around holidays, and other times are noted for Almanac investors' convenience on the weekly planner pages. We are not able to carry FOMC meeting dates, as they are no longer available at press time. Only the first meeting of 2010, the two-day affair on January 260-27, 2010, has been scheduled. However, the rest of the FOMC meeting dates and all other important economic releases are provided in the Strategy Calendar every month in our newsletter, Almanac Investor.
Midterm election years are historically prone to bottoms, especially in October (page 32). 2010 is also a "zero" year, which has been the worst year in the decennial cycle for 127 years (pages 26 and 129). If the 2009 bull rally powers ahead without much of a pause, 2010 becomes more vulnerable to another sizable downturn. But Almanac investors can take some solace in the fact that the Dow has gained 50% on average from the midterm low to the pre-election year high (page 78).
Among the research you will find especially pertinent to 2010 are "Market Charts of Midterm Years" (page 28), "Prosperity More Than Peace Determines Outcome of Midterm Elections" (page 34) and "Midterm Election Time Unusually Bullish" (page 98).
Last year, we unveiled a brand new strategy that combines the benefits of the Best Six Months and four-year cycle, nearly tripling the Best Six Months results with four trades every four years (page 60), and the magic of the fourth quarter on page 86 that shows the sweet spot of the four-year cycle is the fourth quarter of the midterm year and the first quarter of the pre-election year. This year, in light of the global financial crisis and second worst bear market of all time, we feature our study of "How Financial Crises Impact the Market: Ten Worst Bear Markets Since 1900" (page 36).
As a reminder to long-time Almanac readers, the 10 years of monthly Daily Dow Point Changes have moved from their respective Almanac pages to the Databank section toward the rear of this book. We continue to rely on the clarity of this presentation to observe market tendencies. In response to newsletter subscriber feedback, we include our well-received Monthly Vital Stats on the Almanac pages.
The "Notable Events" on page 6 provides a handy list of major events of the past year that can be helpful when evaluating things that may have moved the market. Over the past few years, our research had been restructured to flow better with the rhythm of the year. This has also allowed us more room for added data. Again, we have included historical data on the Russell 1000 and Russell 2000 indices. The Russell 2K is an excellent proxy for small and mid caps, which we have used over the years, and the Russell 1K provides a broader view of large caps. Annual highs and lows for all five indices covered in the Almanac appear on pages 149–151. We've tweaked the Best & Worst section and brought back "Option Trading Codes" on page 190.
In order to cram in all the new material, we had to cut some of our recordkeeping section. We have converted many of these paper forms into computer spreadsheets for our own internal use. As a service to our faithful readers, we are making these forms available at our web site, www.stocktradersalmanac.com.
We are constantly searching for new insights and nuances about the stock market and welcome any suggestions from our readers.
Have a healthy and prosperous 2010!