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We're About to Share Some of Our Editors' Best Picks With a Select Group of Readers As an Investment U subscriber, you already have access to innovative market analysis you can't find anywhere else and timely views on the markets. But did you know that you can also receive specific stock recommendations from our experts' premium research services? It's all thanks to a special upgrade we've created. To find out how it works, click here. Tuesday, October 28, 2014 | Issue #2405 Technical Tuesday: The Perfect Seasonal Storm Christopher Rowe, Technical Strategist, The Oxford Club The stars are rarely this aligned for a bullish price surge in the stock market. Forget about whether the market is undervalued or overvalued, what moving averages crossed where or whether third quarter earnings season will show continued strength. Instead, let's think like The Oxford Club's Emerging Trends Strategist, Matthew Carr, and focus on cycles and seasonality. The Presidential Election Cycle The table below, from Stock Trader's Almanac, shows the average annual returns of the Dow Jones Industrial Average over the past century, when a Democrat is in the Oval Office. Mid-term election years like 2014 are statistically the weakest in the market, while the pre-election years like 2015 are, by far, the strongest. So the strongest surge higher within the presidential cycle tends to be from the mid-term-year low to the pre-election-year high. It certainly appears that we have just seen the mid-term-year low. View larger image There has been only one down pre-election year when a Democrat has been in office over the past century. That decline was only 2.9%. That means we had an up year 92.3% of the time. The average gain in the Dow for pre-election years is 21.4%. Of course, we wouldn't blindly invest our hard-earned money based solely on this statistic. Let's narrow down the time frame and consider some seasonal statistics. What you need to know Financial expert Marc Lichtenfeld believes $93 trillion could suddenly rush out of certain investments - and into others. Ironically, the ongoing bull market in stocks will hasten this event's arrival. Some investors will get very rich, while others will get crushed - especially when it comes to their "safe" holdings. But you don't have to be one of them - not this time. He's created this presentation to ensure that you come out on the winning side. View it here. The Strongest Months The table below shows average monthly performance for the Dow Jones Industrial Average, the S&P 500 large cap index and the Russell 2000 small cap index over the past 20 years (from 1994 to 2013). November 1 marks the beginning of the best six months of the year. It also marks the beginning of the strongest three months for those indexes. I started the table with October because it generally marks the time of the year when prices tend to bottom out and the strong season begins. View larger image Pay close attention to the months of November and December for the Russell 2000 small cap index. Those two months combined returned an average of 4.81%. This is the January Effect. The January Effect was identified decades ago when investors realized small cap stocks were outperforming large cap stocks two- to threefold in January. The thinking was that investors would sell small cap stocks at the end of the year to take a tax loss and then buy them back at the beginning of the next year. View larger image The above chart shows the Russell 2000 small cap index versus the Russell 1000 large cap index from 1979 to 2013. When the chart is advancing, the small caps are outperforming the large caps. Once the trend was identified, seasonal investors, looking to get ahead of this obvious trend, started buying beaten-down small cap stocks in December. Still named "the January Effect," the outperformance period for small caps has shifted to November and December - and it has become less pronounced over time because the trend has been discovered and discussed for so long. That said, seasonal outperformance of small caps versus large caps still exists. In fact, this year the outperformance of small caps might be more pronounced than usual if the U.S. dollar index continues its recent pullback after historically strong gains. (More on that here.) More Mid-Term Bull The table below, also from Stock Trader's Almanac, shows an interesting strategy that comes around every four years. In the eight trading days surrounding the mid-term elections, the Dow Jones Industrial Average made a 2.7% gain, on average. View larger image That's pretty impressive considering the table at the beginning of this article showed us that the Dow returned an average of 3.9% in mid-term years when Democrats were in control. The bullishness starts five trading days before mid-term Election Day and continues for three trading days after. That's from Tuesday, October 28 - today - to Friday, November 7. It's All Lined Up After a strong stock market sell-off that took us to oversold levels typically seen at bear-market lows: We are in the month known for creating market bottoms and in the year known for putting in the major low of a four-year cycle. We are going into the pre-election year, which is known to have the strongest performance of that four-year cycle, by far. We are entering the best three-month and six-month seasonal time frame. Small caps tend to outperform beginning sometime in the next month or two. Today marks the beginning of that mid-term bullish sweet spot. Does this mean we are guaranteed to go up? Absolutely not. But with statistics like these, if we don't play the upside now, then when? Good investing, Chris Click here to post a comment on InvestmentU.com BIG OIL IS SCARED OF THIS Big Oil should be SCARED of this. It could drastically slash their profits... it might even be the end of petroleum as we know it. What is it? Gasoline without petroleum. For $1.71 a gallon. Discover the one little-known company that has Big Oil shaking in their Texas boots. Reader Favorites From Investment U Distillers Look to Cash In as Premium Whiskey Demand Grows by Tom Sandford Tuesday, October 28, 2014 It's impossible to buy more time on Earth. But in the midst of a global whiskey boom, distillers have no problem putting a hefty price on time in a bottle. Read On... Meet the World's Worst Economist by Alexander Green Monday, October 27, 2014 Paul Krugman has written more than a dozen books over the last 20 years and, with the luxury of hindsight, all the erroneous predictions, needless warnings and boneheaded policy proscriptions are there for anyone with too much time on his hands to see. Read On... Investment U Plus by Bob Keaveney Tuesday, October 28, 2014 If indeed the time is now to find the right small cap stocks, Alexander Green has discovered one small cap that's surged more than 12% in the last four months, with plenty of room to run. Subscribers to the premium version of Investment U are learning about it today. Find out how to join them by clicking here. You are receiving this email because you subscribed to Investment U. 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