Equity Investing and Synchronization, Jeff Hirsch, Almanac of Stock Traders
- Jeffrey Hirsch publishes Stock Trader’s Almanac, known for its simple and timed trades.
- He says that in 2022-2023, investors can use an electoral trade that has returned 47% on average.
- He also explained the evolution of his father Yale Hirsch’s “Best Six Months” strategy.
Beware of flyers, street signs and endless TV commercials – next year will be another election year in the United States.
It can mean annoyance and stress for some – okay, for many – but it also offers significant opportunities for investors.
The Stock Trader’s Almanac has focused on election-related trading trends for over 50 years. It was founded by Yale Hirsch, who is credited with the term “Santa Claus Rally“to describe how the stock market often rises at the end of the year.
Hirsch, who passed away earlier this month, has also observed seasonal trends in the performance of stocks and developed trading strategies around them. His son, Jeffrey Hirsch, the current publisher of the almanac and its related markets newsletter, recently spoke to Insider about these trends and what they mean as we approach midterm.
Hirsch explains that major U.S. indexes tend to hit lows in midterm election years, like 2022, and then make big rallies that drag into the following year.
“The ongoing chatter and political battles have created this weak spot, we call it the gatherer paradise downstairs, the mid-year year,” he said. “This is where this movement takes place.”
Low points often occur in the second or third quarter of election years, although he says they can occur at any time. Hirsch tracks them with a momentum indicator called the Moving Average Convergence Divergence, or MACD, a popular indicator that measures the relationships between closing prices. This can help traders find times when a stock or index has gone down but momentum is still positive, meaning it should rebound soon.
Using this method to track one of the major indices has historically been a very profitable transaction. Since 1915, using a MACD signal to buy the Dow Jones Industrial Average at its mid-point low and selling at its pre-election year high would have yielded an average return of 47%. Its weakest performance, from a mid-term low to a high in a pre-election year, was a 14% gain in the 1940s.
More recently, using a MACD signal to track the venerable index would have helped investors gain 31% between the index’s December 2018 low and its next high in December 2019. Using a MACD signal has generated 70% gains over a similar period on several occasions. in the past.
Hirsch adds that the new Nasdaq composite fared even better, averaging 70% from the mid-year low of the year to the pre-election year high.
The elder Hirsch was also known to have developed the “best six month change strategy” in the 1980s. Sometimes summed up with the old market saying “Sell in May and go” – a description Jeffrey Hirsch rejects – it is based on the observation that since the mid-20th century the Dow Jones has made big gains between November and April and delivered much lower returns the rest of the year.
He recommended a strategy of buying a simple fund taking up the Dow or S&P 500 before those good times and going for a core bond fund for the weaker times. Jeffrey Hirsch adds that the Nasdaq and the Russell 2000 follow slightly different patterns with a “best eight months” period running from November to June.
Investing in the Dow Jones this way every year since 1950 would have turned an initial investment of $ 10,000 into $ 1.2 million by the end of 2020, according to Hirsch’s calculations – which rule out any presumed gains from bond investments.
But he says the MACD indicator improves performance here as well. The almanac says investors can use this signal to buy stocks at the first index of a positive trend in the markets in October or later, and turn to bonds as early as possible in April.
He calculates that applying the strategy in this way would have turned the same $ 10,000 invested in 1950 into $ 3.1 million at the last exit point in 2020. Using the same techniques on the Nasdaq from its first year, 1971, would have turned $ 10,000 into $ 2.9 million. over a shorter period of time.