# Sell in May and go away - US market



## bigdog (9 May 2013)

http://en.wikipedia.org/wiki/Halloween_indicator

Halloween indicator
From Wikipedia, the free encyclopedia

The Halloween indicator is a variant of the stock market adage *"Sell in May and go away,"* the belief that the period from November to April inclusive has significantly stronger growth on average than the other months.[1] In such strategies, stocks are sold at the start of May and the proceeds held in cash (e.g. a money market fund); stocks are bought again in the autumn, typically around Halloween.

Though this seasonality is often mentioned informally, it has largely been ignored in academic circles (perhaps being assumed to be a mere superstition). Nonetheless analysis by Bouman and Jacobsen (2002) shows that the effect has indeed occurred in 36 out of 37 countries examined, and since the 17th century (1694) in the United Kingdom; it is strongest in Europe. According to the efficient-market hypothesis, this is impossible.

It is not clear what causes the effect.

Most interesting about the effect is that it shows that stock market returns in many countries during the period May-October are systematically negative or lower than the short-term interest rate, which also goes against the efficient-market hypothesis. Stock market returns should not be predictably lower than the short term interest rate (risk free rate).

Popular media often refer to this market wisdom in the month of May, claiming that in the six months to come things will be different and the pattern will not show. However, as the effect has been strongly present in most developed markets (including the United States, Canada, Japan, the United Kingdom and most European countries) in the last decade - especially May-October 2009 - these claims are often proved wrong.

That said, between April 30 and October 30 2009, the FTSE 100 gained 20% (from 4,189.59 to 5,044.55)[2]

One study which tests the Halloween indicator in US equity markets found similar results as Bouman and Jacobsen (2002) over the same time period but using futures data over the period April 1982- April 2003 and after excluding the years 1987 and 1998 no longer found a significant effect, leading these researchers to conclude that it was not an "exploitable anomaly' during that time period in the United States."[3] Other regression models using the same data but controlling for extreme outliers have found the Halloween effect to still be significant.[4]

The original saying is "Sell in May and go away, stay away till St. Leger Day", referring to the last race of the British horse racing season, however this day is unlikely to be known by non-Brits so it is replaced by Halloween (which in turn is Samhain, about one-eighth year after the equinox).

“Sell in May and go away” has persisted as a profitable market-timing strategy for stock investors, according to a follow-up study by Andrade, Chhaochharia and Fuerst (2012). They find that the Sell-in-May seasonal pattern persists after the end of Bouman and Jacobsen's (2002) sample. This is important in showing that the Halloween effect is not an statistical fluke detected by data mining. Strikingly, in the 1998-2012 sample on average November-April returns are larger than May-October returns in all 37 markets they study. On average, the difference is equal to about 10% percentage points. Also strikingly, the magnitude of the difference is the same in Bouman and Jacobsen's (2002) and in the out-of-sample analysis of Andrade, Chhaochharia and Fuerst (2012).


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## pixel (9 May 2013)

> On average, the difference is equal to about 10% percentage points. Also strikingly, the magnitude of the difference is the same in Bouman and Jacobsen's (2002) and in the out-of-sample analysis of Andrade, Chhaochharia and Fuerst (2012).



So, one can make about 10% more profit during November to April than from May to October.
Interesting to know. 
*But* does that imply one should stop making profit during the less profitable HY? Especially when interest rates are barely covering inflation?

I don't think so:
Earning an annualised 40% in one half, 30% in the other, would average 35% profit. 
Forgoing those 30% by accepting bank interest - let's be generous and say 10% - averages 25%.

Conclusion: "Sell in May" is still a stupid idea.


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## bigdog (9 May 2013)

http://www.usfunds.com/investor-res...n-may-and-go-away-not-this-year/#.UYrb78pBrRw

*Sell in May and Go Away? Not this Year*

April 30, 2012

Time to take your portfolio on vacation? One catchy investing maxim that’s popular this time of year is “sell in May and go away,” the notion that investors should cash in their investments and take the summer off. Historically, this hasn’t been a bad strategy. You can see from this chart that June, July, August and September have been the worst four months of the year for the S&P 500 Index since 1988.





Since 2000, the June-September period for the S&P 500 is split. Half of the years saw positive returns, while the other half were negative. Historically, you have only about a fifty-fifty chance for a positive gain during those months while your odds are roughly 10 percent better during the rest of the year.

The trend is less consistent for emerging market stocks. You can see that the median monthly return for the MSCI Emerging Markets Index since 1988 is negative for June and August, but positive for July and September. The frequency of positive returns during the June-September period is roughly 6 percent lower than the rest of the year.

Monthly returns for the MSCI Emerging Markets Index



Real GDP in the U.S. grew 2.2 percent during the first quarter of 2012 versus 0.4 percent during the first quarter of 2011, and several areas of the economy are much stronger than they were a year ago. Nonfarm payrolls (up 29 percent), ISM Manufacturing (up 2 percent) and auto sales (up 8 percent) have all improved from a year ago, according to J.P. Morgan. In fact, auto sales are currently at a four-year high.

More importantly, the U.S. housing sector continues to improve. The ISI Group’s homebuilders survey is currently at 50.4, nearly 40 percent higher than a year ago.

Building permits are 35 percent higher and the number of housing starts is 3 percent higher than a year ago, according to Credit Suisse. Sales of existing homes are up 5 percent on a year-over-year basis. Credit Suisse says, “The supply of existing one-family homes has fallen from a peak of 11.5 months in July 2010 to 6.3 months in March (in line with the 20-year average).”

ISI Group says an improvement in housing is important because it lifts consumer net worth and employment, which leads to rising consumer confidence. Housing accounts for just over 2 percent of U.S. GDP, but roughly 27 percent of household wealth, according to Credit Suisse.

Earnings Season Off to a Record Start
The improving global economy is reflected in the thirteenth-straight quarter of better-than-expected corporate earnings. As of Thursday, 80 percent of S&P 500 companies have reported earnings above analyst estimates. Earnings for the 260 companies reporting so far were up 11.4 percent year-over-year and beat the consensus estimate by 6.3 percent.

This is good news for shareholders. According to a *Bloomberg story this week, “companies are increasing shareholder returns in the form of dividends and buybacks after the 2008 financial crisis led them to hoard cash to a record $1 trillion by the end of 2011.” The number of S&P 500 companies paying out dividends now sits at 401, the largest number since January 2000. Corporations bought back roughly $543 billion worth of shares in 2011 and J.P. Morgan estimates companies will purchase another $679 billion worth in 2012.


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## CanOz (9 May 2013)

Big dog, the last sentence....2013?


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## sinner (9 May 2013)

Here you go,

http://marketsci.wordpress.com/2013/05/01/sell-in-may-quant-blogosphere-roundup/

No thanks required


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## baby_swallow (9 May 2013)

On the ES market, since that rally last Friday 3rd May, (which appeared to be a big short covering and creating a big gap on the RTH chart), the market continued to test new heights and there are no substantial selling since. Looks like the long term sellers either went on their summer holidays early or became long term buyers.
(i got my a*r*#*se kicked, btw)


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## CanOz (9 May 2013)

lol@ Baby Swallow....

Last night had some extreme volume for a change, closed on the high....new buyers?


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## nysefloortrader (13 May 2013)

s&P really is not going to find it hard to reach 1700 soon, that is if there is not major new coming. 

Everyone is getting bearish, but the sentiment readings are still on a buy dip scenario, if we get them. 1700 will be comeing soon, and all this BS talk of QE ending will get more people short for more buy programs to send us up higher. 

Right now you are seeing shorts getting hammered, and getting stopped out of the market, sending us up higher, the funny thing is lots of people are still short and can see orders up higher, which are shorts about to get stopped. We go above 1650 and we will likely skid up higher, as more shorts will be forced to finally throw in the towel and get out of the market.


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