By James Dines
The Dines Letter
Some define the "traditional Summer Rally" as any advance of at least 5% from the low established in May or June, to the high reached during the third quarter. On this overly-generous basis, 41 of the past 48 summers (85% of the time), have enjoyed a rally. More-realistic Analysts have tightened this definition to the "net gain from May 31 to Aug 31," which comes out to 56% (27 of the 48 years), still not overly useful.
Contrarily, our Research Department has been tracking this Seasonality very closely over the years and, taking July alone as a month, the actual record since 1961 has not been as encouraging as the legend. We count the last 48 Julys as 26 positive (54%) and 22 negative (46%), not impressive at all. But when compared to August and September, the month of July has in fact been the best performing month in the third quarter for the DJI and the S&P since 1950.
Then our Research Department experimented with something new. I counted the number of times the month of June was down (25 in the last 48 years) and discovered that their subsequent Julys were up 15 times and down 10 times, thus indicating that declining Junes led to rising Julys three out of five times. A down June would increase favorable odds for a bullish July! Curiously, Research discovered no corresponding Seasonality for rising Junes having favored declining Julys.
Next our Research Department tallied the DJI's closing price for the five days before America's annual 4th of July Holiday, as compared with the DJI close five days after the 4th of July: in the 48 Julys from 1961 to 2008, the DJI's net percentage of gains for that 10-day period was positive 31 times. The 31 positive results (65%) in any case are more bullish for these 10 days than the record for the whole-month period (which is 54%, as indicated above). The foregoing suggests that, if there is to be a summer rally, seasonal percentages favor strength in early July followed by less of a gain later in July.
Golds and Silvers: The Dines Gold Stock Average (DIGSA) in the last 41 Julys has risen 18 times, declined 22 times and was neutral once, for a somewhat bearish outlook (55% of the time). The Dines Silver Stock Average (DISSA) has risen 22 times and declined 19 times, for a slightly bullish seasonality. Not much help in our calculations this month.
Editor's Note: James Dines is editor The Dines Letter, P.O. Box 22, Belvedere, CA 94920, 1 year, 14 issues, $295. www.DinesLetter.com.
