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Digg
What's up with "Sell in May and go Away?” This must be the most telegraphed trading system out there. The idea is that traders go away, go on vacation, school is out, the summer doldrums, etc. all add up to it being a dull (or worse) market from May through September.
Let’s look at the basic numbers:
Since 1955, buying the S&P 500 on May 1 and selling on October 1 has the following results: - 55 occurrences - 35 successful trades (63% success rate) - Average return of 0.49% per trade overall
So a couple of things we learn: This is definitely not a signal that the market is going down. In fact, it goes up. But, that said, it doesn't go up by much. In fact, the reverse system: Buying on Oct. 1 and selling on May 1, has a 70% success rate (39 successful trades of the 55 occurrences) and an average return of 7.33% per trade. So definitely there has been some seasonality although, again, it’s not necessarily bad during the summer months — just dull.
And just because you might want to be cautious on the markets doesn't mean you should be cautious on individual stocks. Some stocks have done exceedingly well in the summer months: In the 17 years since 1993, Express Scripts ( ESRX) has only been down during 4 of those summers. On average, ESRX was up 20% per summer, with last year coming in at 19%, for instance, and even the horrible year of 2008 ESRX returned 3.25 if you bought on May and sold on October 1.
Cisco (CSCO) also has had a good run of it during the summers, with an average return of 12% per summer since 1992.
Overall, the best summer stocks in the current Nasdaq 100 have been ESRX CTSH HANS CSCO AMZN And some have done very poorly: Akamai (AKAM) has been an absolutely dismal summer stock, with an average return of -10% per summer since going public. In 2008, for instance, AKAM was down 50%. Last year AKAM was down 13% between May and October. Another one to potentially avoid is Foster Wheeler (FWLT), which has had an average summer return of -2.7%.
I wouldn't use the summer as an excuse to stay away from the markets. Certainly much wealth and many opportunities are created. But if you want to take off the summer for the purposes of relaxation well, then, who am I to stop you?
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Produced by the editors of Dow Jones Newswires, Financial Adviser provides an inside view into the important issues affecting financial advisers, brokers, wealth managers and their clients. Featuring lead editors Brian Cronk and Kevin Noblet and the reporting team of Dow Jones Adviser in New York and London, along with contributions by leading industry voices, Financial Adviser provides insight into the major wealth management issues, including strategies for taxes and estates, philanthropy, investing, practice management, financial planning and personal finance. Write us at wealthmanagerinquries@dowjones.com. For more information on Dow Jones products covering financial advisers and wealth managers, go to http://solutions.dowjones.com/wmblog.
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