Sell in May and Go Away?

June is gone, and from our market perspective, it ended with a bang.  May was terrible, so there might still be a bad taste in your mouth from that down-tick, but the June 4th bottom so far has produced a very nice rally.  However, in the two prior years, as we suffered those mid-year blues from recession fears, that old adage of "sell in May and go away" seemed to still fit the mold.  So, let's look at these last few years.

You can see in the chart above that the boxed in areas are those November to April periods, and the bright read up arrows certainly give you a good bullish view.  However, the May to October periods have produced negative (or almost flat) returns.  It is a fact of nature that we enter the year with optimistic hope, and by May, reality often sets in.  It sort of depends on what kind of environment precedes that six month period.

History certainly shows that the best concurrent six months to buy stocks is the period from November to April, but you can see just in the last three years that the real bottom of the May to October periods often comes in the months preceding that November to April time frame.  It was in March in 2009, July in 2010 and, last year, in 2011, it was in October.  Furthermore, at each of these optimum buy spots, we saw intesnse fear spiked. 

So, we continue to pin our optimistic hopes on the age-old observation that bull markets don't end until Monetary turns negative.  Psychology is the best component to call impending optimum buy spots, and often is also outstanding at calling impending "corrections in a bull market,"  but real tops in bull markets are more a function of Monetary conditions than seasonal patterns.

Here's today's gauges.

This status DOES NOT suggest that the stock market is going straight up, but it also suggests that investors have very favorable odds today of making substantial gains in the next 12 months.

Don Hays

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