The Halloween Indicator in the Context of the Presidential Cycle
November 1, 2010 Leave a comment
If you are aware of the Halloween indicator, than you probably know that strict adherents to this strategy would have recently bought stocks. At this time of the year (and at the end of April), a column chart of the stock market’s returns broken down by month often circulates around the blogosphere.
So instead of doing the same thing as everyone else, I thought I would take a look at the Halloween indicator from a different perspective. Below is a chart of the presidential cycle with the November through April period in gray. I have defined each year of the presidential cycle as starting at the beginning of the 4th quarter because it appears to be a more common method than using the calendar year. Note that the chart only consists of 20 full cycles and therefore the possibility of these results being a product of curve fitting is higher than that of most indicators.
While the chart pretty much speaks for itself, the one thing that really caught my attention was how much of the Halloween indicator’s results were due to the third year of the presidential cycle. The other three periods when it would have been long stocks also outperformed the summer months, but only marginally.
