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Investment Timing/Seasonality Strategy - Sell In May?

Saturday, April 6, 2013 - 10:15 AM
From Mark Hulbert (marketWatch.com):

Why it pays to sell in May - Mark Hulbert - MarketWatch

Excerpts:

 "That advice comes courtesy of a famous piece of Wall Street folklore that is known by the adage “sell in May and go away.”

Unlike most of the other stories investors tell, however, the historical evidence in favor of this one is surprisingly strong. And deeper drilling into the data suggests there are ways to tweak the approach so that you don’t have to dump stocks entirely to capture some of the benefit.

You might also know of the “sell in May” pattern by its other name, the “Halloween indicator.” Both refer to the pronounced tendency for the stock market, on average, to turn in its best returns between Halloween and May Day — referred to loosely as the “winter” months.

The stock market’s average return during the other half of the year, the “summer” months, is far lower.

This pattern has been very much in evidence in recent years. Since the seasonally favorable period began last Halloween, for example, the Dow Jones Industrial Average /quotes/zigman/627449 DJIA -0.28% has gained 11.5%. During last year’s unfavorable six-month period, by contrast, the Dow lost 0.9%. The year before that saw a 10.5% gain during the winter months and a 6.7% loss during the summer months.

To be sure, the pattern hasn’t always worked out this well. But it has far more often than not: Over the past 50 years, the Dow on average has produced a gain of 7.5% during the winter months and lost 0.1% during the summer months."

 My comments:

 This seasonality strategy seems to work due to the popular Christmas rally; it proved true for the past few years (from rear-view mirror:-)).

I do think that there are numerous factors that may drive the market down for this year: (1) now at the peak/near-peak, the only direction is downward, (2) Global unrest (North Korea, Japan/China, Mid-east, cyber threat, etc.), (3) Unsettling U.S. economy (sequester, unemployment, incompetent politicians, Fed. jacking up market with QE-x, etc.), (4) Buying sentiment from most investors (taxi drivers talking about stock of the day), (5) the direction/mood of the wind, (6) usual financial jargons such as over-valued stocks and over-bought indicator.

On the other hand, this may be a contrarian indicator for smart people to buy and make money:D

Go figure and take your own medicine (mark my words without retribution).

Cheers.
6
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,427
1. Saturday, April 6, 2013 - 11:07 AM
Dear 51hh,

It is useful to know such patterns. Mr Fosbak's book "Stock Market Logic" has a collection of many such patterns.

http://www.amazon.com/Stock-Market-Logic-Norman-Fosback/dp/8170944406

...

BTW, the "sell in may" pattern was sharply broken in 2009.  I analyze such patterns often and I have the data handy.  Let me know if you're interested, and I'll post.

Yours Truly,
- Anon
4
ytytytytytytytyt158 posts since
Jan 28, 2013
Rep Points: 623
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