The Five Year Low as a Trading Strategy: The Kitchin Cycle Revisited

Abstract

Consistent with the Kitchin inventory cycle, MSN Money routinely reports the five-year low stock price as a standard investment parameter. This paper analyzes quarterly returns to the strategy of buying a stock at its five-year low price and compares them with comparable returns to investing in either the S&P 500 Index or NASDAQ Composite Index. Consistent with the weak form of the Efficient Markets Hypothesis, the authors find no value in using the five-year low as a buying strategy. However, the five-year low appears to have considerable merit as a tool for short sellers.