The Little Book of Stock Market Cycles: How to Take Advantage of Time-Proven Market Patterns

Chapter Eight

Autumn Planting

When the Seeds of Most Market Gains Are Planted

Human nature synchronizes market seasonality with Mother Nature to a degree. But market gains are predominantly sown in the late summer and early fall and reaped in winter and spring. Monthly seasonal patterns are arranged in the next four chapters in a different array than they are on the calendar in line with seasonal movements of the stock market.

I begin discussing monthly seasonal tendencies with August because quite simply, 11 of the last 19 bear market bottoms (in the modern era since 1950) have fallen in August, September, or October. More recently, since 1982, six of the last eight have ended in these months. These are the best months to establish new long positions or add money to existing holdings when prices are frequently much more attractive.

August Annals

In the first half of the twentieth century, money flow from harvesting made August a great stock market month. In fact, it was the best month from 1901 to 1951. In 1900, 37.5 percent of the population was farming. Now less than 2 percent farm, and August is one of the worst months of the year. August has become the worst S&P 500 month in the past 15 years.

The shortest bear market in history (45 days) caused by turmoil in Russia, the Asian currency crisis, and the Long-Term Capital Management hedge fund debacle ended August 31, 1998. The Dow dropped a record 1,344.22 points for the month, off 15.1 percent—which is the second worst monthly ...