Secret 14SELL IN MAY AND GO AWAY
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“Sell in May and go away,” is an adage on Wall Street that
refers to the fact that stock prices tend to fall in May through
September. A review of the past fifty years shows that holding
stocks only from October till the start of May showed 10 times
greater gains than holding stocks only from May till September.
Seasonal tendencies in stock and futures prices are an important
predictive tool. For example, based on past studies, the
market tends to decline in May and June and also September and
October.
In fact, almost all stock market crashes occurred in October,
including the crash of 1929, the crash of 1987, the crash of
1989, and the crash of 1997. No question that the best time to
buy stocks is near the end of October.
One reason is that tax-loss selling by institutions occurs in
October. Also, stock prices tend to fall in December due to taxloss
selling by individual investors.
Another important seasonal tendency that has existed since
the 1920’s is the end of the month phenomenon. Stock prices
tend to rise on the last trading day of the month and the first four
days of the month.
In fact, if you had invested in the stock market averages
only during those five days since the 1920’s, you would have
shown better gains than if you had been in the market the whole
time. On those five magical days, stock prices rise 70% of the
time during bull markets and 50% of the time during bear
markets.
Why? One reason is that pension and market fund managers
receive distributions from employee paychecks at the end of the
month and must invest those funds.
Another seasonal tendency is that stock prices tend to rise
on the day before a holiday. Why? First, professionals do not like
to hold short positions over a holiday, especially if it includes a
weekend, and will buy back their position before the holiday. In
addition, many professionals start the holiday early, leaving only
small investors who tend to buy instead of sell stock.
Seasonal tendencies also apply to futures and commodities.
For example, based on a past study that spanned ten to fourteen
years, corn prices (based on weekly nearby futures) tend to make
their highs for the year in June or July and make their lows in
December; soybeans make their highs in May and lows in October
and November; wheat prices tend to make their highs in December
and January and lows in May; cattle tends to make its highs in April and May and lows in July; hogs tends to make its
highs from June through August and lows in November and
December.
As you can see, seasonal tendencies should be considered
when dealing with either commodities and futures or stocks. You
have to take advantage and consider every tool at your disposal to
play this game well.
“Sell in May and go away,” is an adage on Wall Street that
refers to the fact that stock prices tend to fall in May through
September. A review of the past fifty years shows that holding
stocks only from October till the start of May showed 10 times
greater gains than holding stocks only from May till September.
Seasonal tendencies in stock and futures prices are an important
predictive tool. For example, based on past studies, the
market tends to decline in May and June and also September and
October.
In fact, almost all stock market crashes occurred in October,
including the crash of 1929, the crash of 1987, the crash of
1989, and the crash of 1997. No question that the best time to
buy stocks is near the end of October.
One reason is that tax-loss selling by institutions occurs in
October. Also, stock prices tend to fall in December due to taxloss
selling by individual investors.
Another important seasonal tendency that has existed since
the 1920’s is the end of the month phenomenon. Stock prices
tend to rise on the last trading day of the month and the first four
days of the month.
In fact, if you had invested in the stock market averages
only during those five days since the 1920’s, you would have
shown better gains than if you had been in the market the whole
time. On those five magical days, stock prices rise 70% of the
time during bull markets and 50% of the time during bear
markets.
Why? One reason is that pension and market fund managers
receive distributions from employee paychecks at the end of the
month and must invest those funds.
Another seasonal tendency is that stock prices tend to rise
on the day before a holiday. Why? First, professionals do not like
to hold short positions over a holiday, especially if it includes a
weekend, and will buy back their position before the holiday. In
addition, many professionals start the holiday early, leaving only
small investors who tend to buy instead of sell stock.
Seasonal tendencies also apply to futures and commodities.
For example, based on a past study that spanned ten to fourteen
years, corn prices (based on weekly nearby futures) tend to make
their highs for the year in June or July and make their lows in
December; soybeans make their highs in May and lows in October
and November; wheat prices tend to make their highs in December
and January and lows in May; cattle tends to make its highs in April and May and lows in July; hogs tends to make its
highs from June through August and lows in November and
December.
As you can see, seasonal tendencies should be considered
when dealing with either commodities and futures or stocks. You
have to take advantage and consider every tool at your disposal to
play this game well.