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On Apr 26, 2017, at 3:09 AM, sarah_oz@yahoo.com [TSP_Strategy] <TSP_Strategy@yahoogroups.com> wrote:
Opinion: Here's the real story behind 'sell in May and go away'
The famous seasonal pattern in investing can be traced to only a few years in history
CHAPEL HILL, N.C. (MarketWatch) — Stop the presses!
You should not — I repeat, not — bet on the famous "sell in May and go away" seasonal pattern this year. New research finds that this pattern's historical track record can be traced to only a few years, specifically, the third year of the presidential four-year term.
During the other three years of the four-year term, in contrast, the pattern is statistically non-existent.
Needless to say, since we are two years away from the third year of President Trump's term, that means there's nothing to bet on this year.
This new research is a big deal, since the "sell in May and go away" pattern — something also known as the Halloween Indicator — had previously been one of the most researched and documented seasonal patterns in the stock market.
Many different studies had consistently found the same thing: That the stock market has produced the lion's share of its historical returns between Halloween and May Day (the so-called "winter" months). Its average return the other six months of the year — the "summer" months between May Day and Halloween — has been far less.
This new research doesn't dispute these previous findings, but goes further to show that it traces almost exclusively to the third year of the four-year presidential term. (See chart.) The study's authors are Kam Fong Chan, a senior lecturer in finance at the University of Queensland in Australia, and Terry Marsh, an emeritus finance professor at the University of California, Berkeley, and CEO of Quantal International, a risk-management firm for institutional investors.
The researchers' findings have been circulating in academic circles since earlier this year, and I reported on them in a Wall Street Journal column in February. But I'm afraid many followers of this pattern are proceeding anyway with their plans to go to cash by this Friday's close, the last trading day of April.
It makes me wonder if anyone is paying attention …
To be sure, you may have other perfectly legitimate reasons to go to cash at the end of this week. And it would not be inconsistent with this new research if stocks did suffer mightily between May Day and this coming Halloween. There always has been, and always will be, significant variability in the year-by-year results.
The import of this research is instead this: There is no historical basis for believing that the stock market over the next six months will behave any worse than it did over the past six months.
So if you do want to go to cash for the next six months, you will need to find other reasons besides the "sell in May and go away" pattern.
Posted by: Steve <stevedermer@yahoo.com>
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