Selling in May, With Precision

If you “sell in May and go away”, you are definitely on the right side of the trend from a statistical perspective: While gains were achieved in the summer months in three of the eleven largest stock markets in the world, they amounted to less than one percent on average. In six countries stocks even exhibited losses! Only in two countries would an investment represent an interesting proposition, as I have shown in the last issue of Seasonal Insights via back-test calculations for the time period 1970 to today.

 

The perennial stock market question: when is the right time? [PT]

 

But does it really make sense to sell at the beginning of May and buy one’s position back again after six months? After all, it seems a bit strange to assume that stock market behavior will adhere precisely to a time period of six months.

Below we will take a look at how one can improve investment results in this context by applying a modified set of rules.

 

A 30 year seasonal chart of the S&P 500 Index – as you will see further below, its behavior in the weak seasonal period is very similar to that of the market  Dimitri picked as an example. Said example has a few interesting idiosyncrasies though that traders will surely find very interesting [PT] – click to enlarge.

 

“Sell in May” in Germany’s DAX Index

As an example I have picked the German Dax Index, which is one of the biggest losers during the six summer months. The chart below shows its seasonal pattern in the course of a year. The horizontal axis shows the time of the year, the vertical axis depicts the 30 year seasonal index since 1987.

 

DAX, seasonal pattern, calculated over a time span of 30 years. After May 1, the index continues to rise, until it peaks in mid July (note that the SPX pattern is quite similar in that respect [PT]).

 

The six summer months are highlighted in blue. According to the “Sell in May” rule, one should not be invested in this time period.

As a matter of fact, the seasonal index does stand at a lower level in early October than at the beginning of May –  thus, following the “Sell in May” rule would have been profitable. The seasonal chart confirms the back-test calculation presented in the previous discussion of the “Sell in May” adage, which arrived at the same conclusion.

However, one can also see that the DAX actually reaches its seasonal peak in mid July. It would therefore obviously have been even better to sell at a later point in time.

 

Optimal Seasonal Turning Points in the DAX

Let us look a bit more closely at the actual weakest seasonal phase in the DAX. The next chart shows the 30-year seasonal pattern of the DAX again, with only the weakest part of the pattern highlighted instead of the entire six summer months.

 

DAX, seasonal pattern, calculated over a time span of 30 years. The weakest seasonal phase lasts only slightly over two months (Readers familiar with seasonal charts will immediately recognize that the extent of the weakness in the index during that time period is quite stunning [PT]).

 

The seasonally weakest trend begins precisely on July 19 and ends on October 02. The average loss generated by the DAX in this time period over the past 30 years amounted to a quite astonishing 5.18 percent.

By contrast, the loss over the entire six month period in line with the “Sell in May” rule only amounted to 3.75% on average. Ultimately it was definitely worthwhile to time the exit with a bit more precision and remain invested for longer.

 

The DAX Declined Only Every Other Time – But Often Quite Dramatically

But did it always make sense to sell? The bar chart below shows the return generated by the DAX in the seasonally weak time period July 19 – October 02 in every single year since 1987. By dehomogenizing the 30 year average one learns a few quite interesting details. Red bars indicate losses, green bars indicate gains.

 

 

Return of the DAX between 19. July and 02. October in every single year since 1987. Downward moves in this seasonally weak time period were often huge.

 

The surprising result: the DAX actually declined in only in half of all cases in the seasonally weakest period, i.e., on 15 out of 30 occasions. However, the losses were at times mindbogglingly large, amounting to up to 35.79 percent, as the rather conspicuous red bars illustrate.

In other words, when it did decline, it often did so dramatically, saddling investor with quite painful losses. While gains occurred at the exact same frequency, they were far smaller than the losses by comparison – hence the surprising extent of the weakness in the seasonally weakest period on the long term seasonal chart.

As an aside, readers can check out the charts of the remaining countries at www.seasonalcharts.com   free of charge.  Thise of you who have access to a Bloomberg Terminal or Thomson-Reuters Eikon, can check them out via the Seasonax app.

 

Conclusion, by PT

First of all, the old “Sell in May and Go Away” adage is indeed valid. If one were to adhere to it  in a disciplined manner as a long term investor, it would tend to improve one’s long term results while at the same time lowering one’s risk (due to being exposed to market risk for only 50% of the time). In the past, transaction costs would have erased this advantage, but luckily that is nowadays no longer the case.

 

However, if employing statistical edges in investing is one’s thing, one can obviously do even better by applying more precise timing based on well-worn seasonal patterns. Note in this context that many of these patterns have proved to be quite persistent over very long time periods, in spite of the fact that several of them are widely known. For some reason they have not been arbitraged away yet. Of course, sometimes such patterns do shift in time or in extent if more people try to take advantage of them, but that is something a high-precision seasonal algorithm like the one employed by Seasonax will catch and reflect.

 

Addendum – Get the App Through Acting Man

Lastly, readers of Acting Man who are interested in trying out the Seasonax app (note that you need to have access to Bloomberg or Thomson-Reuters data services to do so) should contact us at info@acting-man.com (please put “Seasonax” in the subject line). We are happy to report that we are an affiliate of Seasonax, and as such are able to make special offers to our readers that are not available elsewhere. Now might in fact be a good time, as an introductory trial period with a money-back guarantee is currently offered. It will be of advantage if you order it through us – details are available upon request.

 

Charts by: Seasonax

 

Chart and image captions by PT where indicated

 

Dimitri Speck specializes in pattern recognition and trading systems development. He founded Seasonax and publishes the website www.SeasonalCharts.com, which features free-of-charge seasonal charts for interested investors. In his book The Gold Cartel (published by Palgrave Macmillan, see link on the right hand side), commodities expert Dimitri Speck discusses gold price manipulation and modern-day credit excess. His commodities trading strategy Stay-C has won awards all over Europe. He is the publisher of the web site Seasonal Charts as well as of the Bloomberg app Seasonax and Head Analyst of the 90 Tage Trader Letter.

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Coming Debt Reckoning
      Licking the Log American workers, as a whole, are facing a disagreeable disorder.  Their debt burdens are increasing.  Their incomes are stagnating.   There are many reasons why.  In truth, it would take several large volumes to chronicle all of them.  But when you get down to the ‘lick log’ of it all, the disorder stems from decades of technocratic intervention that have stripped away any semblance of a free functioning, self-correcting economy.   Happy...
  • How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System
      Bernanke Redux Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.   Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all...
  • India: Why its Attempt to Go Digital Will Fail
      India Reverts to its Irrational, Tribal Normal (Part XIII) Over the three years in which Narendra Modi has been in power, his support base has continued to increase. Indian institutions — including the courts and the media — now toe his line. The President, otherwise a ceremonial rubber-stamp post, but the last obstacle keeping Modi from implementing a police state, comes up for re-election by a vote of the legislative houses in July 2017.  No one should be surprised if a Hindu...
  • The Triumph of Hope over Experience
      The Guessers Convocation On Wednesday the socialist central planning agency that has bedeviled the market economy for more than a century held one of its regular meetings.  Thereafter it informed us about its reading of the bird entrails via statement (one could call this a verbose form of groping in the dark).   Modern economic forecasting rituals.   A number of people have wondered why the Fed seems so uncommonly eager all of a sudden to keep hiking rates in spite...
  • What is the Buffet Indicator Saying About Gold?
      Chugging along in Nosebleed Territory Last Friday, both the S&P 500 and the Nasdaq composite indexes closed at record highs in the US, with the Dow Jones Industrial Average only a whisker away from its peak set in March. What has often been called the “most hated bull market in history” thus far continues  to chug along in defiance of its detractors.   Can current stock market valuations tell us something about the future trend in gold prices? Yes, they actually...
  • Moving Closer to the Precipice
      Money Supply and Credit Growth Continue to Falter The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since...
  • The 21st Century Has Been a Big, Fat Flop
      Seeming Contradiction CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.   Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable...
  • A Cloud Hangs Over the Oil Sector
      Endangered Recovery As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.   Too many oil...
  • Will Gold or Silver Pay the Higher Interest Rate?
      The Wrong Approach This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question. Which interest rate will be higher?   It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money — its purchasing power —is 1/P (where P is the price level). Inflation is the rate of decline of...
  • Rising Oil Prices Don't Cause Inflation
      Correlation vs. Causation A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the popular thinking that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see first chart below).   Gushing forth... a Union Oil Co. oil well sometime early in the 20th century   But is it valid to...
  • Silver Elevator Keeps Going Down – Precious Metals Supply and Demand
      Frexit Threat Macronized The dollar moved strongly, and is now over 25mg gold and 1.9g silver. This was a holiday-shortened week, due to the Early May bank holiday in the UK. The lateral entrant wakes up, preparing to march on, avenge the disinherited and let loose with fresh rounds of heavy philosophizing... we can't wait! [PT]   The big news as we write this, Macron beat Le Pen in the French election. We suppose this means markets can continue to do what they wanted...
  • Warnings from Mount Vesuvius
      When Mount Vesuvius Blew   “Injustice, swift, erect, and unconfin’d, Sweeps the wide earth, and tramples o’er mankind” – Homer, The Iliad   Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D.  The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town.  Things were near perfect.   Frescoes in the so-called “Villa of the Mysteries” in Pompeii, presumed to depict scenes from a...

Support Acting Man

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com