The following is an excerpt from the November 1, 2013 blog for Decision Point subscribers.
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 unfavorable, and the market most often finishes lower than it was at the beginning of the period. From November 1 through April 30 is seasonally favorable, and the market most often finishes the period higher. (See Sy Harding's book Riding the Bear for details on this subject.) While the statistical average results for these two periods are quite compelling, trying to ride the market in real-time in hopes of capturing these results is not always as easy as it sounds.
Sell in May and go away? Well, not this year. The S&P 500 was up +11.2% in the last six months, so there was obviously a positive force working that overcame negative seasonal tendencies. It was probably the Fed's money printing, but we don't really need to know. It is most important to identify the trend and try to stick with it.
As a point of interest the Dow was up only +5.8%, and it was more in a trading range rather than an up trend. It started at the bottom of the range and ended at the top of the range.
[Hear More: Michael Kantrowitz: We're In the Very Early Innings of the Risk-On Trade]
The next six month's seasonality is supposed to be positive. We stay aware of seasonal tendencies because their effect on the market can be profound; however, we should also be aware that more powerful forces may be pushing prices in the opposite direction of seasonality. Presently, we have positive seasonality plus Fed money printing acting positively on the market. Will problems with the ObamaCare rollout provide any negative current for the market? So far this doesn't seem to be a factor, but the potential is there.
Technical analysis is a windsock, not a crystal ball.
