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Tech
and Seasonality
Brian
Trumbore
President/Editor, StocksandNews.com
On Jim Cramer's CNBC "Mad Money" program
of Wednesday, Jan. 17, 2007, he made a 'big call'
on the technology sector, as in 'sell it,' except
for five specific issues?
[Note:
Data is not stock specific, therefore company names
are excluded.]
Cramer's
broad thesis was that tech should be sold in January
and bought in August, which has been a long known
seasonality- type trade, having in no small part to
do with the fact that corporations tend to spend their
allotted budget and many of the orders come in the
fourth quarter, or, in the case of retail oriented
plays, obviously the Christmas shopping season is
the strongest for sales. This is a gross generalization,
I admit, but it's also reality.
But
to test Cramer's hypothesis, I thought we'd just look
at some numbers using the tech-heavy (sorry for the
clich?) Nasdaq Composite Index.
Since
Cramer said technology should be sold in January,
I take the year end number and then, admittedly arbitrarily,
pick the third Friday in August as the close of the
analysis period?which can then also be viewed as the
launch point for buying tech and holding it until
year end.
12/31/98?.2192
[Nasdaq close]
8/20/99?...2648
12/31/99?.4069?Nasdaq
+85.6% for '99
8/18/00?...3930?3/10/00 - all-time high 5048?9/1/00
- 4234
12/31/00?.2470?Nasdaq
-39.3% for '00
8/17/01?...1867
12/31/01?.1950?Nasdaq
-21.1 for '01
8/16/02?...1394
12/31/02?.1335?Nasdaq
-31.5% for '02
8/15/03?...1702
12/31/03?.2003?Nasdaq
+50.0% for '03
8/20/04?...1838
12/31/04?.2175?Nasdaq
+8.6% for '04
8/19/05?...2135
12/30/05?.2205?Nasdaq
+1.4% for '05
8/18/06?...2163
12/31/06?.2415?Nasdaq
+9.5% for '06
[Note:
In 2000, a major intermediate top was reached in Nasdaq
on 9/1, 4234, the culmination of the stealth rally
after the previous spring's crash. But it proved to
be a classic sucker's rally.]
For
those who want to test Cramer's theory as the next
eight months unfold, the closing figure for Nasdaq
on Wed., Jan. 17, was 2479. Friday, Jan. 12, Nasdaq
closed at its intermediate high of 2502.
So
what can you conclude? In wicked bull and bear markets,
such as 1999 and 2000, you would have lost out by
selling, let's say, on 12/31/98 and not returning
until 8/20/99. In turn, if you sold on 12/31/99 and
bought back in on 8/18/00, you would have limited
the damages slightly.
Look
at 2001 and 2002, though, both dreadful years for
Nasdaq. Despite the carnage the seasonality play would
have made you money in tech in '01 and greatly limited
your losses in '02.
But
then back to an explosive rally in 2003, when you
would have missed out on a lion's share of it by being
out of tech the first eight months of the year.
Then
again, in more mundane periods such as the three-year
stretch of 2004-06, Cramer's theory worked perfectly;
slight dips Jan. to Aug., rallies from there until
year end.
So
if you are a trader, throw this in your manila folder
marked 'August.' [You do have a folder for each month,
don't you?] And after you open it up on Aug. 1, you
then place it in your 'December' folder?.just as we
do with this sort of data here at StocksandNews.
[Sources:
StocksandNews database, Yahoo Finance]
Wall
Street History will return next week.
Brian
Trumbore
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