The common theme most analysts are talking about is where the markets are headed in 2007.  With the Dow Industrials closing Friday at 12,445, a lot of analysts are talking about the Dow rising 1,000 points or so to the mid-13,000 area, but I believe 1,000 Dow points may be an unrealistically pessimistic estimate.

As we look at the bigger picture, we know that longer-term cycles like the Presidential election cycle are useful in surveying the best and relatively worst times to invest in stocks. In 2006, remember that we are just about to come out of the second year of the election cycle, typically the worst of the four years. However, the third year of the election cycle (coming up in 2007) is historically the best of the four years. Usually the Fed will do everything possible to help the economy, which is why I don't expect the Fed to raise rates due to the currently weak dollar. Going back to past market lows in the second year of the cycle, the bottoms have usually occurred in mid-October (looking at 1990 and 1998), while 1994's bottom occurred in November after the mid-term elections. In 2002, the market bottomed in October as well, and the Dow rallied nearly 45% to its peak the following year.

As opposed to just measuring gains from market bottoms during the second year of the cycle, what if we look at the Dow's gains for the full third year of the election cycle? Here's the last 9 results and average gain:

           DJIA Return
1971      +   6.1%
1975      + 38.3%
1979      +   4.2%
1983      + 20.3%
1987      +   2.3%
1991      + 20.3%
1995      + 33.5%
1999      + 25.2%
2003      + 23.3%

AVERAGE  +19.3%

Based on the Dow's close at 12,445 (which of course will change somewhat in two weeks with the official end of the year close on December 31), this +19.3% average gain would drive the Dow to close 2007 at 14,846. So a Dow 15,000 at some point in later 2007 hardly seems far fetched. In fact, 15,000 makes a lot more sense than a reading in the 13,500 area, as the Dow had gains of +20% or more two-thirds of the time -- not to mention the big gain in 1987's first 8 months that was later erased by the October crash.

So if you thought the last four months of 2006 were good, get ready for much bigger trends to the upside in 2007, which should lead to a Happy New Year for all who are poised to trade this accelerating trend.

Price Headley is the founder and chief analyst of BigTrends.com.