Halloween Indicator = STOCK-MARKETS RALLY...??

By

MARK

 

HULBERT

COLUMNIST

CHAPEL HILL, N.C. (MarketWatch) — Odds are that the Halloween Indicator will be especially good for the stock market this year.

That’s encouraging news, since the Halloween Indicator already carries decent odds of success. But when the stock market is riding a wave of momentum into Halloween — as it most definitely is this year, including another 200+ point rally in the Dow Jones Industrial Average DJIA, +0.90%  on Thursday — then the odds become even better.

The Halloween Indicator refers to the stock market’s seasonal tendency to produce its best returns between Halloween and May Day (the so-called “winter” months). This indicator is also known as “Sell in May and Go Away,” since those who mechanically follow it go to cash during the “summer” months (from May Day until the subsequent Halloween).

Notice from the chart above that the Indicator worked like a charm over the last year. Over the seasonally-favorable six-month period that began on Halloween 2014, the Dow gained 2.6% — versus a loss of 2.6% in the unfavorable summer months that began last May Day.

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What’s particularly noteworthy about this seasonal tendency is that it has persisted despite being widely known. If anything, in fact, it’s been stronger over the last 15 years than it was before. That’s significant, since it was in the late 1990s that academic research into the Halloween Indicator first began circulating widely.

Why this year’s Halloween effect could be even stronger

These already-impressive statistical odds become even better when the stock market is able to buck the seasonal odds and eke out a gain over the September-October period — the last two months of the seasonally unfavorable summer period. That’s exactly what’s happened this year, with the Dow currently 5% higher than where it stood at the end of August.

For example, according to a Hulbert Financial Digest analysis of the Dow back to its creation in the late 1800s, the Dow produced an average Halloween-through-May-Day gain of 4.0% whenever the market was a loser over the two months prior to Halloween.

When it was a gainer, in contrast, the Dow’s subsequent Halloween-through-May-Day gain was 6.8%. This difference of 2.8 percentage points is significant at the 95% confidence level that statisticians often use to determine if a pattern is genuine.

Note carefully that the Halloween Indicator doesn’t guarantee that a bear market won’t occur. But if the future is like the past, the worst of any upcoming bear market will wait until after May Day of 2016 — since the bulk of market damage during past bear markets has occurred during the summer months.

During the 2007-2009 bear market, for example, losses during the summer months were twice as big as those during the winter months. The contrast was even more stark over the 30 months between the bursting of the Internet bubble in March 2000 and the October 2002 bear market bottom: The Dow during the winter months during that decline actually produced a small gain — plus 3.5% — while during the summer months it produced a loss of more than 36%.

http://www.marketwatch.com/story/the-best-six-months-for-stocks-is-about-to-begin-2015-10-23

CHINA-yuan to get IMF reserve-currency..!!

What will it mean for the yuan to get IMF reserve-currency nod?

Many major economies, including the US, Germany and UK, say they’re prepared to back the yuan’s inclusion if it meets the IMF criteria

Washington: International Monetary Fund (IMF) representatives have given China strong signals that the yuan is likely to soon join the fund’s basket of reserve currencies, known as Special Drawing Rights, Chinese officials with knowledge of the matter told Bloomberg News this week. Here’s a primer on what that means.

What is a Special Drawing Right?

The fund created the SDR in 1969 to boost global liquidity as the Bretton Woods system of fixed exchange rates unravelled. While the SDR is not technically a currency, it gives IMF member countries who hold it the right to obtain any of the currencies in the basket—currently the dollar, euro, yen and pound—to meet balance-of-payments needs. So the ability to convert SDRs into yuan on demand is crucial. Its value is currently based on weighted rates for the four currencies.

How much of these SDRs are out there?

The equivalent of about $280 billion in SDRs were created and allocated to IMF members as of September, compared with about $11.3 trillion in global reserve assets. The US reported about $50 billion in SDR holdings as of August.

Why does China want this status so badly?

In a 2009 speech, People’s Bank of China Governor Zhou Xiaochuan said the global financial crisis underscored the risks of a global monetary system that relies on national reserve currencies. While not mentioning the yuan by name, Zhou argued that the SDR should take on the role of a “super-sovereign reserve currency,” with its basket expanded to include currencies of all major economies.

Chinese officials have since been more explicit. After meeting President Barack Obama last month at the White House, President Xi Jinping thanked the US for its conditional support for the yuan joining the SDR. Winning the IMF’s endorsement would allow reformers within the Chinese government to argue that the country’s shift toward a more market-based economy is bearing fruit.

Why is the IMF likely to approve this?

Global use of the yuan has surged since the IMF rejected SDR inclusion in the last review in 2010. By one measure, the currency became the fourth most-used in global payments with a 2.79% share in August, surpassing the yen, according to the Society for Worldwide Interbank Financial Telecommunication, known as Swift.

The IMF uses several indicators to determine if a currency is “freely usable,” the benchmark for inclusion in the SDR basket. IMF staff members said in a report in August that the yuan trails its global counterparts in major benchmarks, such as its use in official reserves, debt holdings and currency trading. But staffers have also stressed that the fund’s 24 executive directors, who will make the final call, will need to use their judgment.

Many major economies, including the US, Germany and UK, say they’re prepared to back the yuan’s inclusion if it meets the IMF criteria. Supporting the yuan may boost relations between China and countries such as the UK, which has sought to make London a major yuan trading hub.

Adding the yuan to the basket may also help the IMF improve its standing with the Chinese. China and other emerging markets were supposed to gain greater representation at the fund under reforms agreed to in 2010, but the U.S. Congress has yet to ratify the changes.

What’s likely to happen to yuan assets in the longer term?

At least $1 trillion of global reserves will migrate to Chinese assets if the yuan joins the IMF’s reserve basket, according to Standard Chartered Plc and AXA Investment Managers.

Foreign companies’ issuance of yuan-denominated securities in China, known as panda bonds, could exceed $50 billion in the next five years, according to the World Bank’s International Finance Corp.

“Once the Chinese yuan becomes part of the SDR, central- bank reserve managers and institutional investors will automatically want to accumulate yuan-denominated assets,” Hua Jingdong, vice president and treasurer at IFC, said in an interview in Lima earlier this month during the IMF and World Bank annual meetings. “It will be strategically important for China to welcome all kinds of issuers to become regular issuers in China’s onshore market.” Bloomberg

Bonnie Cao in New York and John Quigley in Lima contributed to this story.

http://www.livemint.com/Politics/t9azL5zeY1yAl4dbgVxNRP/What-will-it-mean-for-the-yuan-to-get-IMF-reservecurrency-n.html