Conclusions:

Presidential Election Cycle (PEC) was the dominant cycle during 1965-1980.
PEC was a visible cycle during 1981-2000.
PEC became the dominant cycle again during 2001-2004.
SignalTrend outperformed in each period. (1965-1980, 1981-2000, 2001-2004)
Test periods less than 20 years are insufficient.
Introduction:
The Presidential Election Cycle has been evident in the stock market for a long time. It is a four year cycle, four years being the
length of a president's term. Since 1964,
stocks have performed worse during in the first 22 months of a presidents term than
during the remaining 26 months of the term
. It is one of many cycles and forces that drive the stock market. According to Cyclic
Theory, it becomes most visible when other forces are relatively neutral.  The Figures 1a and 1b below illustrate one such period
when the cycle is obvious (1965-1980).

Figure 2b shows the strength of the cycle during the 1981-2000 period.

The 2001 -  2004 period was clearly dominated by the cycle. That period is included in Figure 3.

The use of graphs to generate clear buy or sell signals for the 2005 - 2008 term will be explored in a future issue of SignalTrend's
Strategy Research Monthly.

The proposition that repetitive financial cycles exist may challenge theories that veteran investors have  formed through years of
observation. The evidence presented herein spans nearly half a century. Please give this theory your earnest consideration. An
objective seeker of knowledge will follow the evidence... wherever it leads.
1) Historical Summary: 1965 - 1980 (Dow Jones Industrials)
Figure 1a
4 Presidential Election Terms (1965 - 1980)
2) Historical Summary: 1981 - 2000 (Dow Jones Industrials)
3) Historical Summary: 2001 - 2004 (Dow Jones Industrials)
4) Historical Summary: 1965-2004 (Dow Jones Industrials)
Two Manisfestations of One Cycle
This examination of 40 years of the Presidential Election Cycle reveals two manifestations of the same cycle. For your
convenience they are reproduce in reduced size below. In both periods, the first 22 months of the presidents term is weaker
than the remaining 26 months of the four year term. Without exeption, the later 26 months were profitable. (See Figures 1a
and 2a.)
Figure 1b
Average of 4 Presidential Election Terms  (1965 - 1980)
Figure 2b
5 Presidential Election Terms - Averaged 1981 - 2000
5) Why does the cycle exist?
Various observations are presented below.

Incumbents prefer to face election day against the backdrop of a strong stock market. Election day is in November of the
Election Year. But primaries begin near the beginning of the Election Year. It's not only the President who has an interest in
the condition of the stock market. Senators, representatives and judges are also up for reelection.

Those who control the political parties may believe that the country needs some bad tasting medicine. If so, then it is better
for the politicians to administer that medicine well before the primary... providing enough time for the bad taste to be forgotten
and prosperity to be evident at the time voters next enter the voting booths.

Even foreigners may influence the Presidential Election Cycle. Many believe that 9/11 brought about the 2001-2002 Bear
Market. Terrorists would be unwise to harm American interests shortly before our elections. Otherwise a President may be
elected with a mandate to take reprisals. 9/11 occured less than eight months
after Bush's inauguration. Had 9/11 occurred
during the presidential primary season of 2000, a president far more aggressive than Bush might have been elected.

It is clear that the stock market performs best during the 26 months prior to the presidential election. Who benefits from this?
Policians. The consistency of this occurrence makes it hard to avoid the conclusion that they have the ability to influence the
market.

It's more difficult to determine their methods. Is the means of their influence through visible events or through largely unseen
forces like the monetary policy of the federal reserve? Can their methods be overdone and spin the market out of control? Is
that what caused the Great Depression?

As long as the
goal of the party in power is reelection, we should continue to see the Presidential Election Cycle. However,
the ability to influence the stock market could be used for other purposes which may impact stocks in a way that is
inconsistent with the Presidential Election Cycle.
6) Strengths and Weaknesses of the PEC
Strengths
1) It provides a sense of history with which to interpret the current market environment.
2) It provides good reason to be bullish from October of the Midyear through the end of the presidents term.
3) If one has the misfortune of being Bullish during a Bear market that occured during the first 22 months of the term, the PEC
provides hope and general timing for a possible turnaround.

Weaknesses
1) It does not provide a finely tuned buy point during the Midyear.
2) Doesn't provide direction during the first 22 months of the PEC. During the five terms of 1965-1980 and 2001-2004, the
market fell during the first 22 months. During the five terms in 1981-2000, it rose during the first 22 months.
3) It's application to some pre-1965 periods would have been very costly.
4) Being based solely on the calender, it is a rigid system.  It does not consider the actual behaviour of the market.  
7) Concluding Remarks
It would be far better to follow a flexible system that could identify Major Reversal Points whether they were in sync with the
Presidential Election Cycle or not. In other words... if certain conditions exist at
Major Reversal Points... and if those
conditions can be identified using mathematical formulas based on objective and available data... then a system can be
devised to
time the market more profitably. SignalTrend is just such a system. It has consistently identified Major Reversal
Points
throughout an entire century. The proof is in the results.

An excellent result could be achieved by combining the Presidential Electon Cycle (rigid system) and SignalTrend (flexible
system). If SignalTrend is bullish and the Presidential Election Cycle is in its later 26 months, one could invest more
aggressively.

May your investments flourish!
SignalTrend Inc. 2005 All Rights Reserved.
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Presidential Election Cycle
Strategy Research: Summary, Analysis and Long Term Test Results

DJIA
Forecast
Signal 1900-1925
Signal 1926-1950
Signal 1951-1975
Signal 1976-2000
Signal 2001-2005
Historical Prices


S&P 500
Forecast
Signal 1950-1975
Signal 1976-2000
Signal 2001-2005
Historical Prices


NASDAQ
Forecast
Signal 1950-1975
Signal 1976-2000
Signal 2001-2005
Historical Prices


40 Year History
Prime Rate
Mortgage Rates
Treasury Rates
CD Rates
Our Market Timing...  Your Triple Gain !                             Backtested 100 Years !
SignalTrend
Post Election Year
Midyear
Pre-election Yr
Election Year
Post Election Year
Midyear
Pre-election Yr
Election Year
Figure 1b
Average of 4 Presidential Election Terms  (1965 - 1980)
Post Election Year
Midyear
Pre-election Yr
Election Year
Midyear
Pre-election Yr
Election Year
Midyear
Pre-election Yr
Election Year
Figure 2a
5 Presidential Election Terms 1981 - 2000
Figure 2b
5 Presidential Election Terms - Averaged 1981 - 2000
Figure 3
1 Presidential Election Term 2001 - 2004
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Analysis:
The election year is not the beginning of a president's term. It is the last year of his term. Presidents are inaugurated in
January of the year following the election year (herein called the Post Election Year).
Observe that stocks bottomed in the
Midyear of every term!
Analysis:
At first glance, it appears that the Presidential Election Cycle stopped working as some have proclaimed. The following graph
will show that it is indeed alive and well.
2001                                       2002                                     2003                                     2004
/
9/11/01
Post Year
Midyear
Pre-year
Election Year
Post Year
Midyear
Pre-year
Election Year
1965 - 1968
1969 - 1972
1973 - 1976
1977 - 1980
1981 - 1984
1985 - 1988
1989 - 1992
1993 - 1996
1997 - 2000
Analysis:
This graph is an average of the four four year terms contained in figure 1a. The tendency to decline from the election through
September of the Midyear is obvious. The recovery from September of the Midyear through the end of the Election Year is
equally clear.

The lesson of 1965-1980 was to be Bearish during the Post Year and most of the Midyear... then to be bullish until the end of
the Election Year. (That is how an investor at the beginning of 1981 would have viewed it.)  That is one lesson that investors
during 1981-2000 would have to
unlearn. As you will see in figure 2b below, the first 22 months were typically Bullish markets
during 1981-2000... the opposite of how the first 22 months performed during 1965-1980! (See Figures 2b and 1b.)
Post Election Year
Analysis:
This graph is a average of the 5 presidential terms contained in the figure 2a. Two Trendlines have been drawn under the
blue Dow line. On average, the Dow rose with a moderate upward slope until about October of the Midyear ( the black
trendline). Then the slope increased (the red trendline).

This graph makes it clear that the Presidential Election Cycle was still moving the market from 1981 through 2000. But its
effect was not as dominant as during 1965-1980.
The first 22 months were weaker than the remaining 26 months in both
periods
.

However, during 1981-2000, the depressing influence of the Presidential Election Cycle on the first 22 months was not
powerful enough to turn the first 22 months into a
Bear Market. During the 1965-1980 period it was powerful enough to do
just that. Cyclic Theory can partially account for the change. Hopefully, the basics of Cyclic Theory will be the subject of a future
Strategy Research Monthly Issue.

The lesson of 1981-2000 was to be Moderately Bullish during the Post Year and most of the Midyear... then to be Aggressively
Bullish until the end of the Election Year.  (That is how an investor at the beginning of 2001 would have viewed it.)
That is a
lesson that
investors during 2001-2004 would learn to regret. As you see in figure 3 below, the first 22 months of the
2001-2004 term was
Bearish ... the opposite of how the first 22 months performed during 1981-2000!. If you will compare
Figure 3 with Figure 1b, you  will see that the 2001-2004 term followed the 1965-1980 pattern.

History presents many lessons both old and new. The wise investor takes hold of  the new,  without letting go of the old.
Analysis:

The 1965-1980 Version of the Cycle Returns
This graph shows President Bush's first term (2001 - 2004). The decline from the election through September of the Midyear
is obvious. The recovery from September of the Midyear through the end of the Election Year is equally clear.
If you will
compare Figure 3 with Figure 1b, you  will see that the 2001-2004 term followed the
old 1965-1980 "V" shaped pattern.
Keep in mind that Figure 1b represents an average of 4 such cycles and is therefore "smoother" than the graph in Figure 3.
Post Election Year
10,700
9,700
8,200
7,200
8,270