Weekly Commentary Insert

Here is a partial insert from our most recent weekly screen:

Market Overview:
With the end of this weekend, we are greeted with the end of the summer and the end of vacation for most major institutional traders, managers and players. I have been speaking about the slow summer months and the thin trading that usually accompanies these months, followed by stronger fall months and typically solid January and February months. I will now present you with hard data to support the statements that I have been making all summer long. An old saying on Wall Street goes like this:

“Sell in May and go away”

The data that I will present has been researched in Hirsch Organization’s Stock Trader’s Almanac and an article written by Elizabeth Thompson. They explain that the market has a very distinct seasonal indicator, one that was popularized as the “Halloween Indicator”, directly relating to the quote above.

According to the Almanac, if an investor invested $10,000 in the DJIA on November 1 and sold on April 30 every year from 1950 to 2004, they would have earned $492,060. If this same investor did the opposite and had bought on May 1 and sold on October 31 from 1950 to 2004, a $318 loss would have resulted. That is an amazing stat, one that is difficult to fathom. This trend extends outside of the American stock market as an article from December 2002 of the American Economic Review says that such a statistical pattern existed in the U.K. stock market as far back as 1694 and still exists today.

As I have mentioned many times in my daily and weekly commentary, big time Wall Street fund managers and traders go on vacation to the Hamptons, upstate lake side homes and international destinations. While these investor leave, they sell their weak holdings and have their staff sell anything that becomes weak while they are gone. They basically clean house and sell any investments that can’t survive while that are not at the helm. This results in the thin volume that we see year in and year out from June to August.

According to Elizabeth Thompson’s article Gone away for the Summer? It’s Time to Come Back, she states, “that the financial world encourages investments in the November through April period more so than in the May through October period.” She further states that January is the month that employees sign up for 401(k) plans while IRA’s have an April deadline which requires investors to place more money in their stock related retirement funds. This type of setup brings an influx of money to the table during the beginning of each year and naturally pushed prices higher before the flat summer months when they typically correct.

September is historically one of the worst performing months in American stock market history but it can also present an ideal opportunity to place positions on stocks that are showing excellent relative strength. Typically, these stocks go on to be market leaders and breakout after Halloween and into the New Year. November through February are some of the best performing months in Wall Street history but if you wait to place positions at the end of this range, you may be buying extended stocks that are poised to drop as the spring ends, creating losses in your portfolio. There are always exceptions to historical data and the rules so we want our MSW community to follow the daily and weekly action of the market before buying and selling. One more study suggests that the market will continue do trade the way it has traded for the first five months of the year. If this scenario holds true to 2005, we will be stuck in a sideways market for another four months. Regardless, I will be here researching the leaders and trends and will give you my best analysis outside of predictions and historical data. I felt that this historical data would help some investors realize that the market does work in predictable ways from a long term macro view.

As for this week’s market action: The unemployment rate fell to a four year low of 4.9% while the price of crude oil futures fell $1.90 to $67.57 per barrel. Gasoline futures fell 22.53 cents to $2.1837 a gallon as the national average price at the pumps rose to $3.00 per gallon. I filled up my tank yesterday for a total of $46.53, the highest price I have ever paid at the gas station (luckily, I don’t drive an SUV). Just a few years ago when I lived in NY, I enjoyed paying $0.99 in New Jersey because the price in NY was higher at around $1.29 per gallon. I didn’t go out of my way to fill up in NJ but the $1.29 now seems like a huge bargain compared to today’s prices.

The NASDAQ managed a weekly gain on below average volume but it did stay above the key 50-d m.a. We saw an increase in the daily new high ratio mid week and a slight decline on Friday but that is mostly due to the holiday weekend. The DOW was up for the week but remains below both key moving averages. Looking at our weekly list of stocks, I can say that they are some of the best performing stocks in the market over the past several months. This list may contain some stocks that will become the leaders in the next rally that may happen near Halloween if the analysis and data from above holds true.

Enjoy the long Labor Day holiday! Keep the people from the south in your thoughts and prayers. Also remember that the stock market is closed on Monday so there will not be a daily screen. We will be back on Tuesday with a brand new quality daily screen!

Piranha