Wall Street History

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Wall Street History

01/26/2007

Tech and Seasonality

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 Apple, Microsoft,
Hewlett-Packard, Cisco, and Google.

[Note: I am in no way recommending these stocks myself.]

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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