Don't fall for it.

The argument relies on a sleight of hand.

This isn't to say that the Presidential Election Year Cycle has no validity.

It is widely accepted that the stock market typically performs better in the second half of a president's term of office than in the first. To the extent that the stock market continues to adhere to this pattern, we should expect it to be relatively weak this year and relatively strong in 2007 and 2008.

So far, so good.

But not wanting to leave well enough alone, some have come up with the bright idea of measuring how much the stock market rises from the low in the second year of a presidential term to the high in the third. And that's where the trouble begins.

On their face, the numbers certainly look impressive: Since 1954 (when the S&P 500 index was created), this gain has averaged 49.7%.

You can imagine how excited the bulls become with this number. Applied to the low so far this year for the S&P 500 (June 13 close of 1,223.69), this suggests that, at some point in 2007, this index will trade at 1,832, a new all-time high, in other words.

Applied to the Dow Jones Industrial Average, this 49.7% justifies becoming even more bullish. Applied to the DJIA's June 13 closing low of 10,706.14, the argument implies that the Dow will trade above the 16,000 level sometime in 2007.

Oh yeah?

Have you detected the sleight of hand? There are at least two of them, actually.

The first: The stock market's high in a given year is almost always higher than the low of the previous year. Even in the depths of the depression, this still was the case. The Dow fell 33.8% in calendar 1930 and another 52.7% in 1931, for example. Yet from 1930's low to 1931's high, the Dow gained more than 23%.

So calculating the average gain from the low of the second year of a presidential term to the high of the third is destined to produce a big number.

How high?

Consider all years since the S&P 500 was created in 1954: The average gain from each year's low to the next year's high was 35.7%. That's lower than the 49.7% average that emerged when measuring the low of the second year of the presidential term to the third year's high, but still not too shabby a gain. Applied to the S&P 500's June 13 low of 1,223.69, this 35.7% average translates into a high of 1,661 sometime in 2007, still a new all-time high.

So the bulls would reach essentially just as bullish a conclusion when applying their argument to every year of the presidential election cycle. In no event would their argument ever lead to a bearish conclusion.

Sounds to me like, "Heads I'm bullish, tails I'm bullish." If it were only so easy.

What about the second sleight of hand?

It's this: Those who interpret the argument bullishly are assuming that 2006's low has already been registered. But it is only after the fact that we know that a low has been hit. It may be that June 13 will mark the date of the closing low for the entire year. But, then again, it might not.

If we were to assume that the market's low for the year has already been hit, why not cut to the chase and simply assume that the stock market is going to rise?

The bottom line?

The argument about the market's gain from the low of the second year of a presidential term to the third year's high is little more than a variant on Will Rogers' famous advice to only buy a stock if it goes up; if it doesn't go up, don't buy it.

Am I being too harsh? Perhaps, but not too much.

To give the bulls' argument its due, it is true that the S&P 500's average gain from the low of the second year of the presidential cycle to third year's high is higher than the gain from any other year's low to the subsequent year's high, and in a statistically significant way. So at least there is something on which the bulls can hang their hats.

But even this statistical basis is questionable. It turns out that, while the gain from the second-year low to the third-year high is statistically significant for the S&P 500 since its creation in 1954, it is not statistically significant when applied to the Dow back to its creation in the late 1800s.

But even if it were, it would not resurrect the argument.

Fortunately, there are far more legitimate arguments on which the bulls can base their bullishness. But I do take it as a warning sign of growing desperation among the bulls that this argument is given any credence.