Kirk, thanks for the link. I took a good look at the discussion and found data and viewpoints supporting both sides of the argument:
'Tis The Season...Get Out of The Market and Short
The end of the 'Best Six Months'
April surges can set up summer bear strategies
By Jeffrey A. Hirsch
Last Update: 12:01 AM ET April 1, 2003
EDITOR'S NOTE: Jeffrey A. Hirsch is CEO and President of the Hirsch Organization, Inc. He is editor of the Stock Trader's Almanac and the Almanac Investor newsletter.
NEW YORK (CBS.MW) -- Seasonal trading patterns are one of the things we look for in our research into the historical tendencies of the stock market. The month of April is packed with seasonal trading opportunities and is a critical juncture for the market.
April has been the best performing Dow month since 1950, with an average monthly gain of 1.8 percent. It ranks fourth for the S&P 500 (SPX: news, chart, profile) with a 1.3 percent average gain. Since 1971 when the Nasdaq began, April ranks fifth on the over-the-counter market averaging a 1.1 percent gain, fourth for the S&P 500 (1.2 percent) and second on the Dow (2.1 percent). April 1999 was the first month ever to see the Dow gain 1000 points.
The first half of the month still tends to do better than the second half despite the April 15th tax deadline. Stocks typically anticipate great first quarter earnings by rising sharply before earnings are reported, rather than after. It is rarely a dangerous month except in big bear markets (like 2002).
End of the "Best Six Months"
However, April marks the end of the so-called "best six months" of trading: November through April. Since 1950 an excellent strategy has been to invest in the market between Nov. 1 and April 30 each year and then switch into fixed income securities for the other six months. (See chart at the end of the column.)
November, December, January, March and April have been outstanding months since 1950. Add February and these six consecutive months gained 10,092.17 Dow points in 52 years, while the remaining May through October months lost 360.80 points.
A hypothetical $10,000 invested only during the "Best Six Months," November-April, compounded to a $457,103 gain, overshadowing the May-October $77 loss. (S&P results were $319,241 to $8,154.) Just two November-April losses were double-digit and were due to our April 1970 Cambodian invasion and the fall 1973 OPEC oil embargo.
When we discovered this strategy in 1986, November-April outperformed May-October by $88,163 to minus $1,522. Results got even better these past 16 years, $368,940 to $1,445 (or over 250 to 1).
These results can be more than doubled using the simple "Moving Average Convergence Divergence" timing indicator. By applying the simple MACD signals, instead of $10,000 gaining $457,103 over the 52 years when invested only during the "Best Six Months," the gain more than doubled to $1,199,247. (On the other hand, the minor $77 loss during the "Worst Six Months" deepened dramatically and that $10,000 investment lost $5,977 for the 52 years.)
Impressive results for being invested during only 6 1/2 months of the year on average! For the rest of the year you could park in a money market fund, or if a long-term holder, you could write options on your stocks (sell call options). More aggressive investors can also implement bearish strategies.
Bearish strategies
As the military phase progresses in Iraq we will likely get some sort of closure over the next few weeks as US-led forces take control of the majority of the country. A strong rally should ensue coinciding with the end of the "Best Six Months." But it won't likely have the same legs as we experienced in 1991.
Other woes plague the market -- economic and geopolitical -- and technical and fundamental market conditions are quite different than they were back in 1991, so its not guaranteed that the market will continue to rise after the initial relief rally following some form of resolution on Iraq.
With the "Best Six Months" (November-April) nearing the end, it behooves us to prepare strategies to hedge against or capitalize on a declining market during the "Worst Six Months." Aside from merely selling and going into to cash, one can profit in other ways. You can short the indices or employ any number of more complicated or hedged futures and option strategies.
Longer-term investors can write covered calls to lower stocks' cost bases. It also is a perfect time to set up portfolio hedges to protect against that potential big drop during the "Worst Six Months." You could even sell out-of-the-money puts to generate income while at the same time setting yourself up to take delivery at a price you feel is an appropriate valuation. This can be done with individual stocks, index futures or options, but our favorites are the increasingly popular exchange traded funds (ETFs).
The easiest strategy for the "Worst Six Months" is simply to short the QQQs , Diamonds and Spyders (the ETFs on the NASDAQ 100, the Dow 30 and the S&P 500). All of these bear strategies will be more effective as the market rallies. Set up these bear strategies into strength prior to the end of the "Best Six Months" in April.
cbs.marketwatch.com.
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Author: CaptRon
Date: April 11, 2003 12:38 PM
Subject: Seasons signal (MACD) sell today...
From RM.C thru Mktswing:
Aaron Task
for those who may have missed it, Stock Traders Almanac issued a "sell" signal today, reversing an Oct. 2 "buy" recommendation. Today's sell call is based on MACD (moving average convergence-divergence) trends and their seasonal "Best 6 Months" switching strategy.
In addition to recommending raising cash, the Almanac folks advise traders implement shorts, bearish option strategies and hedges, as well as tighten-up stops on equity positions.
"With much accomplished already in Iraq, Wall Street is now focused on the potentially lengthy rebuilding process and the sketchy economic and earnings outlook," the Almanac wrote. "We believe better buying opportunities will present themselves during the historically weak months May-October."
Notably, the Almanac folks maintain a prior forecast that the Dow will exceed 10,000 this year -- presumably in Q4 -- based on pre-Presidential election year cycles.
thestreet.com.
Disclaimer: All postings and links from other sites are for information/entertainment only, NOT trading or investment recommendations. Accuracy of any data posted is not verified. As all markets entail risk, please do your own due diligence and research for any investment you make. "Lets be careful out there", HSB (thanx, Jen, 8-)
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Author: smile_1
Date: April 11, 2003 1:50 PM
Subject: Re: Seasons signal (MACD) sell today...
In response to message posted by CaptRon:
Thanks Capt.
Interesting dilemma considering the expectation of 10k Dow
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Author: KLR
Date: April 11, 2003 2:06 PM
Subject: Re: Seasons signal (MACD) sell today...
In response to message posted by CaptRon:
.
OK, Hirsch gave his "sell in May" signal today and believes we have now entered the worst six-month period in the market.
He is also saying that you should not only go to cash [actually Govt's] but that you should short the market.
...The easiest strategy for the "Worst Six Months" is simply to short the QQQs , Diamonds and Spyders (the ETFs on the NASDAQ 100, the Dow 30 and the S&P 500). All of these bear strategies will be more effective as the market rallies. Set up these bear strategies into strength prior to the end of the "Best Six Months" in April...
The purpose of this post is to memorialize Hirsch's sell date as well as the today's closing prices on his recommended shorts...to wit:
SPDRS (SPY)
87.15 ê 0.36 (-0.41%)
Nasdaq-100 Index Tracking Stoc (QQQ)
25.51 ê 0.26 (-1.01%)
DIAMONDS (DIA)
82.20 ê 0.26 (-0.32%)
We're watching Jeffrey.
cbs.marketwatch.com.
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Author: KLR
Date: April 13, 2003 3:31 PM
Subject: Re: Re: Seasons signal (MACD) sell today...
In response to message posted by KLR:
.
‘Sell in May and go away but buy back
by St Leger Day’ is one of the nursery rhymes of thestockmarket (possibly of very old vintage, as the St Leger classic horse race has been run every September since 1776 and has been so called since 1778).
This old saying, they claim, gives a trading strategy that halves the risk of equity investing while not affecting the rewards.
The assertion is, at first sight, easily tested. We need just to break down the annual returns of equity markets into the two fractions of a year and look at the results. To make comparisons easy (and this does not affect the results) we break down the returns into the half-years May–October and November–April.
Figure 1 does this for 19 of the largest equity markets in the world over the last three decades.
Figure 1 shows that, in every one of the 19 major
markets studied over the last 30-odd years, the greater part of the return for the year is concentrated in the November–April period. The effect is very pronounced, with the (unweighted) average for the 19 markets being 10.5% in November–April and just 1.4% in the May–October period.
The 19 markets above capture 97% of the total market capitalisation of world equity markets at the present time. MSCI indices with dividends reinvested are available for another 16 (smaller) markets from 1988, and these display a very similar seasonal pattern.
In summary, the trading rule works with economic significance in 34 of the 35 markets. The effect cannot be accounted for by a seasonal incidence of risk, as risk – under the usual definition of standard deviation of returns – is similar in both halves of the year.
ucd.ie.
I guess we will just have to see what happens this year.
RtS |
