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The Market Is Still Rising. Has Sell In May Failed?

  • Written by Syndicated Publisher 1 Comment1 Comment Comments
    June 8, 2014

    As usual at this time of year, you can hardly pick up a financial publication without seeing an article about how the idea of Sell in May out-performing the market is a myth. That’s in spite of more than 60 years of clear evidence of its out-performance in academic and other independent studies.

    With the market now up since the Sell in May exit date of May 1, the articles have taken a new tack, that Sell in May is obviously failing again this year, paying no attention to the fact that all sell in May says is that the market is quite likely to be lower by October or November.

    Perhaps they should at least glance at previous years when the market had a similar appearance, with a still rising market through May.

    Here are just a few examples.

    2007. The top wasn’t in until July. And it wasn’t just an intra-year top, but the beginning of the 2007-2009 bear market which had the Dow down to 6,500 before it ended in 2009.

    Looks a lot like 2014 so far, although this year the market was down in January, and in 2007 an initial decline took place in February. Could that mean a top in 2014 could also come a month earlier than in 2007?

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    1998. The market also didn’t top out in 1998 until July, but then it was into the 1998 ‘mini-crash’, and its 22% plunge to the September low.

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    1992. Top in early June into a decline to October low.

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    1990. Top in early July into a 22% plunge to October low. Like this year, in 1990 the market had a sell-off in January before rallying back into July.

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    Let’s skip back and look at an even more serious example.

    1987. The market topped out in April, was down in May, but then rallied back very strongly into August, convincing everyone that Sell in May was not going to work. But then came the top in late August and the decline that culminated into the 1987 crash in October, a 37% decline in three months. 

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    Ah, heck, may as well skip back through a bunch of others to 1929 and the year of the big one, the 1929 crash. May didn’t look like it had been a good time to sell in 1929 either, until the market topped out in late August into the 1929 crash and the low for that year in November, and the beginning of the 1929-32 bear market in which the Dow lost 90% of its value.

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    Just a few examples of how, although the tops are frequently in May or June, they have come later, and it even looks like when it does come later the decline can be leading into something more serious.

    Note: This commentary only refers to Sell in May and its rule to sell on May 1 and buy back on November 1. Our Seasonal Timing Strategy (STS), which incorporates the momentum reversal indicator MACD, triggers its exit and re-entry signals based on what the market is doing at the time the calendar date approaches. It’s exits have come as late as late June, and its re-entries as late as early December, making for seasonal periods that vary between four and eight months long in some years. As a result, it significantly out-performs Sell in May.

    To read my weekend newspaper column click here:   The Truth About the Jobs Report and the Economy

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    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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