JTH

Good afternoon


It’s that time of year again, the traditional time where folks start talking about the “Sell in May” phenomenon where investors exit stocks and enter bonds. While its name sake lends itself to a single month, it’s really a tactic the media dedicates to a 6-month time span, but the problem is that a whole lot can happen in half a year. Truth is, it’s really just a twist in stats, and an intelligent trader can outperform bonds during just about any time of the year.

The best six cumulative months of November-April are now behind us and now we enter what they call the worst-six months. But there are some other truths they have left out, for instance, a strong positive best-six months often leads to a strong positive worst-six months. Over the last 60 years, there have been 23 best-six that have closed over 10% (similar to our current situation) of those 23 only 6 of the worst-six have closed in the red.

Now I don’t want to mislead you, in a bear market the “Sell in May” is clearly IMHO the best route to take, of the 14 best-six that closed in the red, 8 of those worst-six closed in the red, and 5 of those 8 closed down more than -10%. But this isn’t a bear market, and the government is not giving us a great opportunity to enter bonds, so while “Sell in May” is a pliable strategy, I myself don’t think this is the right tool to use for 2013.

Moving on, here we have the months of May and their returns broken down by both Months & Decades. Of note, the last 3 Mays have closed in the red, but over the last 60 years, not more than 3 in a row have close in the red. Of these 60 years, 27 closed down 33 closed up, from my perspective, it isn’t that May is necessarily a bad month, but it is a month that often markets a 3-6 month top.


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Here’s more data to chew on, only now it’s in TSP terms. Over the past 3 Mays, the F-Fund has closed in the black while the other 3 funds closed in the red. In addition, over the past 12 cumulative Mays, the S-Fund leads in performance.


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For May’s weekly cumulative returns over the past 20 years, Weeks 1 & 2 are about break even, Week-3 has a strong negative ratio, while Week-4 has a strong positive ratio. We will not have a week 5 this year. Looking at this data (and comparing it to my experience with other months) May appears to have some volatility, great for those of us who like to play the big swings, this is the month where heroes are made on the Auto Tracker.

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Last May was horrible for the Auto Tracker participants, of the 1065 entries, only 25% closed the month in the black. But don’t let this deter you, money can be made, 67% did manage to outperform the C-Fund and the Top-20 earned from 1.21% to 4.17% all within a month where the C-Fund closed down -5.99%

While there are 23 days this Month, on Monday 27 May the markets will be closed. Looking at this chart we can see the first 5 days stair step down, and Day-6 has some unusual strength. The Yellow boxes are where 2012 fell within this chart. Since this year has played out much like 2012, we have some reason to think this is how 2013 will play out.


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For days 1-5 of May, days 1-2 have a strong positive bias, while days 3-5 have a strong negative bias.


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Finally, for more information on "Sell in may" refer to a previous blog I did called Does Sell in May and go away really work? There's some good info in there for those who are more risk aversive.

Trade safe...Jason

---------------------DISCLAIMER--------------------
The majority of this data is based off the S&P 500's past prices, typically over the last 20 years. If this data does not come from the S&P 500, then I will state what index it is derived from, otherwise assume it is of the same source. While most of the data is computer generated, much of it is still done by hand and is therefore subject to the occasional human error. Past data does not guarantee future results! We are all grownups here so we should already know we are each individually responsible for our own accounts, so if it doesn't work out, it's your own fault. Occasional I get PMs from newer members, asking me what to do with their accounts, so here's my answer. Find out what DCA is then do it for a long time. In the meantime read, read, read, then practice what you read, then figure out where you screwed up, then start the process all over again.