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Market Indicator for the Week Ahead – October 03, 2011
Five-Month Losing Streaks and the Fourth Quarter



Introduction

September ended last Friday, and for the fifth month in a row, markets were lower. This is the 15th time since 1900 that the Dow Jones Industrial Average (DJIA) fell five months in a row. Below is a table showing each instance. We're down nearly 15% during the current losing streak. Unfortunately, these streaks do not typically stop at five months. Only six out of 14 times, and only once in the last five occurrences, was the sixth month positive.

The longest monthly losing streak ended in 1942, when the Dow was down nine months in a row (December 1941 was the fifth negative month, for the record).

market indicator-oct03,2011-DOW losing streaks



Fourth Quarter

However, there is some good news, to provide a glimmer of optimism to the investor. The following tables summarize Dow returns by quarter since 1950, and over the last 20 years. Historically, the third quarter is easily the worst, and this last one saw the Dow fall about 12%. So, it's good news that it's over, at least.

Furthermore, the table shows the fourth quarter has been the most bullish, averaging a gain of about 5%, and reaping a positive return almost 80% of the time over the last 20 years.

market indicator-oct03,2011-DOW losing streaks since 1950



Stand-out Stocks

By taking a closer look at individual stocks to see if any stood out during the fourth quarter of the last five years, by reviewing returns on the most liquid stocks at hand, it was determined that only four equities had positive returns in each of the last five fourth quarters. These outperformers are listed below.

Priceline.com (PCLN) has fared the best over the last five fourth quarters, averaging a 20% gain over the final three months of the year. The last stock on the list -- Safeway (SWY) -- stands out from the rest by virtue of the simple fact that it's in a long-term downtrend. But over the last five years, your portfolio would not have been harmed by owning this stock during the fourth quarter.

market indicator-oct03,2011-positive quarters



Finally, below is an expanded list of 20 stocks with the biggest average returns over the past five fourth quarters, looking at those equities that were positive in four of those quarters. You can see from the "Min Return" column that the one negative fourth-quarter return for these stocks was often quite dramatic.....this being the fourth quarter of 2008!

market indicator-oct03,2011-positive stock



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