Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Seasonality May Be Especially Important This Year

Stock-Markets / Seasonal Trends Apr 09, 2011 - 01:22 AM GMT

By: Sy_Harding

Stock-Markets

It’s that time of year again when I always remind you of the market’s seasonality, its proven tendency to make most of its gains between November and May, and experience most of its losses in the opposite period.


I get a kick out of people who dismiss it as an interesting theory that doesn’t always work. It’s not theory. It’s proven fact. In spite of the few years when it has not worked, investing over the long-term based on the market’s seasonality significantly outperforms the market, and with much less risk.

Don’t take my word for it. Academic studies provide clear evidence.

For instance, a 27-page study published in the prestigious American Economic Review in 2002 concludes, “We found that this inherited wisdom of Sell in May to be true in 36 of 37 developed and emerging markets” It went on to say that, “A trading strategy based on this anomaly would be highly profitable in many countries. The annual risk-adjusted outperformance ranges between 1.5% and 8.9% annually depending on the country being considered. The effect is robust over time, economically significant, unlikely to be caused by data-mining, and not related to taking excess risk.”

Another study in 2008 at the New Zealand Institute of Advanced Study, which focused solely on the U.S. stock market, concluded that “All U.S. stock market sectors, and 48 out of 49 U.S. industry sectors performed better during the winter months than summer months in our sampling from 1926-2006.”

Let’s put the fact that it doesn’t work every year in context.

To begin with, no strategy, particularly buy and hold, works every year. And that is also true of seasonality. For instance, it underperformed in 2003 and 2009. In those years the market made gains in the winter months, and then, fueled by massive government stimulus programs, continued still higher during the summer months when a seasonal investor would have been invested in something other than stocks.

But the seasonal investor did not lose money by being out of the market in the unfavorable season in those years. He or she merely missed further gains. But when an investor is in the market in unfavorable seasons in which the market experiences the serious declines that most often take place in unfavorable seasons, that investor actually loses money. Those losses can be substantial, with investors giving back much, if not all of the gains made in the previous favorable season. For instance, from May 1st to its low during the summer months, the S&P 500 lost 22% of its value in 2001, 24% in 2002, 38% in 2008, and even 16% in the early summer correction in the positive year last year. Those are the experiences that created the ‘lost decade’ that buy and hold investors experienced but which seasonal investors avoided.

Why might seasonality be even more important this year than in other years?

Negatives are piled up against the economy and market to a degree not seen in a number of years. They include rising inflation; global central banks raising interest rates to ward off inflation, which is also likely to slow their economic growth; signs of the U.S. economy slowing again (sharp declines in home sales, durable goods orders, and consumer confidence); the coming end of the Federal Reserve’s QE2 stimulus efforts in June; and the austerity measures Congress will be forcing on the country in efforts to bring the record budget deficit under control.

Then there is the high level of investor bullishness usually seen near market tops. For instance, the Investors Intelligence Sentiment survey shows bullishness has jumped up to 57%, while bearishness has fallen to just 15.7%. That spread of 41.6% is considered to be in a danger zone. The last time it reached 40% was in October, 2007, as the market topped out into the 2007-2009 bear market.

So, fair warning. Seasonality is liable to be even more important this year than in most years.

The traditional seasonality maxim, ‘Sell in May and Go Away’, calls for buying November 1 and selling on May 1 of the following year. Those dates were the basis for the academic studies mentioned earlier.

But obviously a positive market move does not begin and end on the same day each year. So in my 1999 book Riding the Bear – How to Prosper in the Coming Bear Market, I introduced my Seasonal Timing Strategy. It uses a technical indicator that tracks market momentum reversals to better identify the entries and exits. Over the last 40 years, its exit signals have been as early as April 20, and as late as June 20.

The modification significantly improved the already impressive performance of the basic ‘Sell in May and Go Away’ seasonal strategy. In a recent article on MarketWatch, Mark Hulbert wrote that the Hulbert Financial Digest has only been tracking the performance since mid-2002, and since then “Harding’s modification of the Sell In May and Go Away indicator produced an 8.2% annualized return . . . with 37% less risk.” That significantly beat the performance of the S&P 500.

In the interest of full disclosure, I and my subscribers have the portion of assets following our seasonal strategy 100% invested in the 30-stock Dow until the next exit signal is generated.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2011 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in