Clearly by now every Joe Plumber has heard of the beaten down ‘Sell in May and go away’ cliche, so here we are, it’s May. And there are just as many pundits defending the veracity (or, more accurately, profitability) of following that system, as ones attacking it and pointing out that ‘this time it’s different’.

One of the Seasonal Timing Strategies  (and one that I have started following) was introduced by Sy Harding n 1998 and ‘ has gained 190.6% to year-end 2011 compared to a 64.4% gain for the Dow, a 20.3% gain for the S&P 500, and an 18.8% gain for the Nasdaq.’ 

Anyone following this system could have saved oneself some grief during awful summer months drawdown periods of 2010 and 2011, not to mention made quite a bit more money as can be clearly demonstrated by this SPY chart.

‘Stock Trader’s Almanac’ guys follow a similar seasonality strategy, which triggered a “sell signal’ on 4/3/2012, which came very close to nailing the top on SPX.

However we shouldn’t forget that we are in the presidential election year, which can have a tremendous impact on market performance.

Compare overall seasonality chart: 

 

With that of an election year:

If the patterns holds true, while May looks atrocious, June should be quite strong and July and August are screaming ‘lever up long’.

McClellan seems to agree with that as well, pointing out similar charts and stating ‘A big strong June and July is wholly contrary to the old saw about “Sell In May…”.  Most of the time that rule does work, at least in part, but in election years a whole different rule goes into effect.  If the correlation persists this year as well as it has been doing up until now, we can look forward to a big rally in June before the market finally enters a plateau in July, when the media’s attention is tuned to the campaign promises being slung by the presidential candidates. 

Considering the fact that Operation twist is quickly drawing to an end (and should end around June) and the upcoming upheaval in the market will raise further demands for continuing easing efforts, Uncle Ben should start rolling up his sleeve to fire up those printing presses (in whatever easing/twisting form printing manifests itself this time) right around June timeframe. Incumbent propping-up is likely to drive the market higher – whatever the cost – and why not ride that wave?

I have been happily in bonds in my long term accounts at the moment, escaping the upcoming carnage  (which is far from over) and awaiting the buy signal for the summer rip higher. While the market is likely to go down swinging at least 10% from the recent high and volatility is likely to explode (another post on why I think that), all will be well in just a few short weeks.

 

 

3 Responses to “Seasonality update (long term accounts)”

1. 

   Yogi & Boo Boo

   May 6, 2012 at 12:18 pm

   Nice post. Apparently I’m banned from voting or it’s broken. 5 stars. I saw the McClellan research ant thought it was pretty interesting. “Sell in May, except when…”
2. 

   Brian

   May 26, 2012 at 11:32 pm

   thanks for the charts. my gut says the same thing.
3. 

   Hawaiifive0

   May 28, 2012 at 3:58 pm

   Very nice!

Comments are closed.