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KAEPPEL’S CORNER: June’s Boon
By Jay Kaeppel, Optionetics.com
5/30/2006 10:30 AM EST
In my article dated April 12, 2006, “Dates To Know And Love,” I wrote about a series of trading dates that over time have shown a tendency to witness bullish moves in the stock markets. This week I would like to add one more timely period to the mix: the dates in this period include June 1st through June 6th. The number of actual trading days within this period may vary depending on where any weekend days fall. For example, the time around this period will include just four trading days. June 3rd and 4th are a Saturday and Sunday so the “bullish” dates this time around are June 1st, 2nd, 5th and 6th. Let’s take a look at how this has worked in the past.
As with the other date periods I tested in the original article, this test begins on December 31st, 1969. For each calendar year, we will assume the only time that we are in the stock market between June 1st and June 6th, inclusive. Obviously this is not a strategy that anyone is likely to exclusively pursue, however, the point is to highlight the performance of the market during this one particular timeframe. Figure 1 (below) displays the growth of $1,000 invested in the Dow Jones Industrial Average only between June 1st and June 6th since and including 1970.
Figure 1: Growth of $1,000 in Dow June 1 through June 6 since 1970
This June period has seen the Dow advance 28 times and decline only 8 times since and including 1970. This works out to a very respectable 78% winning percentage.
Figure 2 shows the same data in a slightly different form. Chart 2 displays the net gain in percentage terms garnered only during the June 1st through June 6th period ending December 31st, 1969 and May 26th, 2006 using the same strategy.
Figure 2: Total Cumulative % Gain
Now obviously a 35% gain over 35 years is by itself not something that anyone is going to get too excited about. But remember, this idea is not intended to be a “stand alone” investment strategy. It is simply an idea designed to take advantage of a specific tendency in the stock market. Also, remember that this 35% gain was accrued in a total of just 155 trading days. To put this into perspective, consider the following:
* The average daily gain during those 155 June days that a trader would have been in the market was +0.00197%.
* In a typical trading year there are approximately 252 total trading days.
* If you were able to average a gain of +0.00197% each trading day of the year, you would gain +64.0% per year.
To put it anther way, the period June 1st through June 6th has seen the Dow advance at an annualized rate of +64% since 1970. So the big problem here is that this period only comes around once a year. So in light of these facts, I am considering starting a petition drive to alter the calendar. With this new calendar January 1st is replaced by June 1st. It then runs through June 6th, at which point it starts over again at June 1st and so on and so forth until 365 days go by. Then we start again at June 1st. Sure it may get awfully confusing, and certain allowances would have to be made for birthdays and holidays. But heck, we’ll all be making so much money in the stock market, why would we care?
(Of course, this might have to wait until I am finished with my current petition drive. This one calls for the Chicago Cubs organization to be completely disbanded and Wrigley Field be burned to the ground. This year’s team has finally pushed me over the edge. Enough is enough! And these two ideas dovetail nicely since the Cubs are usually out of contention by June 1st anyway. But I digress…)
One way to maximize this June trend is through the use of leverage. One possibility is to buy Diamonds (DIA) using leverage. Other possibilities are the Rydex Dynamic Dow Fund (RYCVX) and Profund Ultra Dow 30 (UDPIX), both of which attempt to emulate the performance of the Dow Jones Industrial Average times two (see Figure 3).
Figure 3: ProFund Ultra Dow 30
OASIS 2006 NOTE
I am looking forward to seeing many of you at Optionetics OASIS 2006 in Santa Clara. It promises to be another fantastic event. I will be speaking at 8:00AM and again at 10:30AM (same talk both times) on Thursday 6/7 and will be around all weekend to answer any questions you may have. I hope to see you there.
To search for previous articles written by Jay Kaeppel, please click here.
Jay Kaeppel
Staff Writer and Trading Strategist
Optionetics.com ~ Your Options Education Site
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