Very interesting, and thanks for sharing your results. The strategy calls for buying in the fall of the mid-year cycle, and I noticed a number of your years are buying in the spring. So what are the results if you buy in October every year?
Bill Fleck and a trader on his site both told me that 1982 and 1990, both recession years, were different than today. Stocks rose in those mid-election years because inflation and interest rates were declining, and the recession was either behind us or close to it.
Why are you considering this short-term rally as a “still going” category? This rally is just a Fed-is-done rally. Historically the stock market falls into the fall, and I anticipate this year is the same.
I studied these last decades also, and this is the first time that we are entering into a recession in the mid-year cycle. There is no way this rule can work entering into a recession. I am guessing the commercials will not go long, and so this trade won’t be executed.
The danger of following patterns is they are backward looking. Perhaps the pattern is, “Stock markets rally in mid-year presidential election years as long as we are not facing rising inflation or an economic slowdown”. People looking backward, not aware of the full rule, don’t realize the markets rallied in those years only because there was not an economic slowdown.
For this reason, technical and fundamental analysis have to work hand in hand. The COT report shows what the insiders are doing, and rest assured, they follow the fundamentals. So using the COT report can be a proxy for studying the economy. Let them do it for you, right? This is my understanding of the insiders, but perhaps Chris can correct me if this is not accurate. Going into a recession, perhaps the COT will show insiders playing some rallies, but not going long.
Once we are in a recession, and stocks are hammered, that’s when I want to get back in the market. The economy will turn around during the recession, and the economists won’t report it until several quarters later. Again, I am interested in whether the COT report shows the insiders getting in early.
Chris, what is the rate of return earned in the stock market if someone followed only the COT report, and did exactly what they do? How much better are they are predicting the market?
