Friday, November 11, 2011

A Little Something You Won't Learn From Your Stockbroker

There's an interesting little phenomenon out there in the stock market you've probably never heard of known as the Halloween Indicator.

The theory is that from May 1st until October 31st the stock market generally goes down and from November 1st to April 30th the market goes up. While I've yet to read any convincing causes for the reason behind why this happens, a historical examination of the Dow seems to prove this hypothesis right.

If you took $10,000 in 1950 and invested in the NYSE index only on May 1st and sold on October 31st every year until 2009 you would have taken a loss of $424. On the other hand, if you did the opposite and invested on November 1st and sold on April 30th you would have a generated a return of $534,348 during that same 59 year period. 

November 1st has just passed and again the trend held true this year. If you had bought the market index on November 1, 2010 (DJI - 11,024.62) and sold on May 1, 2011 (DJI -12,807.36) you would have seen a gain of 13.9%. Likewise from May 1, 2011 (DJI - 12,807.36) to October 31, 2011 (DJI - 11,955.01) the market fell 6.6%.