Sell in May and Go Away

Today, May 1, begins a six-month period of unfavourable seasonality, of which we are commonly reminded by the saying “Sell in May and go away.”

Research published by Yale Hirsch in the Trader’s Almanac shows that the market year is broken into two six-month seasonality periods. From May 1 through October 31 is seasonally unfavourable, when the market most often finishes lower than it was at the beginning of the period.

From November 1 through April 30 is seasonally favourable, and the market most often finishes the period higher. While the statistical average results for these two periods are quite compelling, trying to guess the market in real-time in hopes of capturing these results is not always as easy as it sounds.

Below is a one-year chart showing the last two six-month seasonality periods. It begins on the 1st May 2012 and ends on 30th April. The left half of the chart shows the unfavourable May through October period and the right half shows the favourable November through April period. The green line shows the Dow’s level at the beginning of the favourable period, the red line the Dow’s level at the beginning of the unfavourable period. As you can see, the Dow did finish the unfavourable period lower than where it started, and in the favourable period it finished well above its starting point.

weekly_blog_130501_01

The 2011 one-year period is a textbook example of seasonality tendencies, but kindly note that the lines have now been reversed, with the green line now showing the Dow’s level at the beginning of the unfavourable period and the red line the Dow’s level at the beginning of the favourable period. (apologies for any confusion here, but it’s relevant for the remaining three charts.)

weekly_blog_130501_02

Regardless of how the market performs on average, every year is different and presents its own challenges, and there are no guarantees that any given period will conform to the average. Remember that bull and bear market pressures will override seasonal tendencies. The following chart is an example where a bull market completely ignored unfavourable seasonality.

weekly_blog_130501_02

And with the next chart the bear market ruled.

weekly_blog_130501_04

In conclusion, seasonal tendencies will be working against the stock market for the next six months. While this is no guarantee that the bears will have control, they will have the wind at their back and we suspect that this year there may just be a repeat of the 2008/09 chart shown above.

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2 responses to this post.

  1. […] “Sell in May and go away” was our overview on the 1st May of this year, commenting on the research published by Yale Hirsch in the Trader’s Almanac, which shows that the market year is broken into two six-month seasonality periods. From May 1 through October 31 it is seasonally unfavourable, when the market most often finishes lower than it was at the beginning of the period, whereas from November 1 through April 30 it’s seasonally favourable, and the market most often finishes the period higher. […]

    Reply

  2. […] yet still they have run higher as volumes have contracted, itself not a healthy sign. Even the, “Sell in May and go away ” history did not work this year as the S&P 500 was up by 11% over the period to the 1st […]

    Reply

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