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.