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That seasonal patterns exist cannot be denied. But there may be patterns within those patterns, depending on how you look at them. The four-year Presidential cycle is a prime example — or are we only looking at half the pattern there? Here's a new look at the Presidential cycle.

People plan, project and predict the future using past trends in most everything they do, from whether to grab an umbrella in the morning all the way to timing a turn through oncoming traffic. But how far can the practice of relying on past trends be taken when sizing up the future of the stock market? Many interesting historical patterns seem to abound: the Presidential election cycle, the decennial pattern, the Monday effect and so on. The key for the investor, however, is to determine which of these patterns are valid enough to base at least part of one's investing decisions on.

Let us look at two variations of the Presidential election pattern, the traditional four-year pattern and an eight-year pattern. Let's look at two subjects: Introducing the eight-year pattern and offering a simple means by which to measure the validity of any historical pattern.

JUSTIFYING PATTERNS

Most stock market investors are familiar with the four-year Presidential election cycle. This pattern suggests that the two years leading up to a Presidential election are generally better years for investing than the two years that follow. The underlying rationale is that the political party in power wants the economy and market to do well before the next election and is willing to apply restrictive economic policies only after the election. This four-year pattern has earned credence over the years partly because of this compelling logic and partly because of its statistical robustness.

This is an important point, as the confidence of any historical pattern must be based either on a logical explanation or reasoning behind the pattern, or on the statistical character of the data that makes up the pattern. Either line of thought gives us confidence that the current application of the pattern will sufficiently resemble past experiences. With that in mind, then, let's take a brief look at the construction of both the four-year and eight-year Presidential election patterns.