There is a fairly regular pattern to how the market behaves during what is called the “four-year election cycle.” Typically, we get a peak in the spring, a bottom in late summer, and then a strong rally into the pre-election year:

We more or less had that pattern in 2010-2011, where we peaked in the spring, bottomed in the summer, and then rallied into the middle of the pre-election year (2011):

The chart below is an average of the last 5 mid-term election years, excluding 2002 (I’m not anticipating a bear market this year), overlaid by the S&P 500 so far this year. The pattern suggests a rally of 6.5% into an April peak before giving back all of its gains, followed by a bottom in late August, to finish up with a strong year-end rally.

For reasons why I don’t expect a major market peak or bear market this year, please see the following:

• Technician Richard Dickson: No Sign of a Market Top
• No Recession in Sight With 98% of the Nation Expected to Expand
• Market’s Bill of Health – Financials & Consumer Discretionary Weigh; Long-term Trend Still Bullish

Image: Flickr (licence attribution)

About The Author – Chris Puplava, Financial Sense Online

Chris graduated magna cum laude with a B.S. in Biochemistry from California Polytechnic State University, San Luis Obispo. He joined PFS Group in 2005 and is currently pursuing the designation of Chartered Financial Analyst. His professional designations include FINRA Series 7 and Series 66 Uniform Combined State Law Exam. He manages PFS Group’s Precious Metals Managed Account, Energy Managed Account, and Aggressive Growth Managed Account. Chris also contributes articles and Market Observations to Financial Sense and co-authors In the Know—a weekly communication for Jim Puplava’s clients only—with other members of the trading staff. Chris enjoys the outdoors.