Old Truism

Readers are surely aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.

And the saying is justified. In my article “Sell in May and Go Away – in 9 out of 11 Countries it Makes Sense to Do So” in the May 01 2017 issue of Seasonal Insights I examined the so-called Halloween effect in great detail. The result: in just two out of eleven international stock markets does it make sense to invest during the summer months.

 

October meetings after you forgot to sell in May [PT]

 

But is “sell in May” really the best recommendation? After all, it is merely a saying based on general experience. We will take a closer look at the seasonal pattern below.

 

The Precise Seasonal Pattern of the Russell 2000 Index

The small and mid-cap index Russell 2000 exhibits particularly pronounced seasonal trends. That makes it very useful for the purpose of seasonal analysis.

Unlike a standard price chart, the seasonal chart of the Russell 2000 depicts the average pattern that emerges in the index in the course of a year. The horizontal axis shows the time of the year, the vertical axis the average percentage changes over the past 30 years. The seasonal trends of the index can be discerned precisely at a glance.

 

Russell 2000 Index, seasonal pattern over the past 30 years – the Russell 2000 enters a period of seasonal weakness in mid July.

 

As can be seen, the Russell 2000 does indeed typically decline between May and October. However, there is one last surge into a mid July interim peak before it actually begins to fall rather noticeably. This underscores that it is important to analyze seasonal trends with precision.

The period of seasonal weakness in the Russell 2000 Index is highlighted in dark blue on the chart. It begins on July 15 and ends on October 27.

 

The Russell 2000 Declined in 17 of 30 Cases in the Seasonally Weak Period

But what were the returns of the index in individual years? The following bar chart shows the return generated by the Russell 2000 Index between July 15 and October 27 in every single year since 1987.

 

Russell 2000 Index, percentage return between July 15 and October 27 in every year since 1987.  On three occasions the index suffered losses in excess of 25 percent.

 

As you can see, the color red clearly predominates. Not only did losses occur more frequently, on average they also tended to be larger than the gains. In other words, short positions not only had a greater average win rate than long positions, they also delivered higher average profits.

 

Examine the Seasonal Trends of Other Instruments as Well

What seasonal patterns are displayed by other stock market indexes, or commodities, bonds and currencies?

To find out, either go to www.seasonalcharts.com, or call up the Seasonax app by typing in “APPS SEASON” on a Bloomberg Professional Terminal or alternatively access it through the App Studio in the menu of Thomson-Reuters Eikon. You will find precise seasonal charts there and much more.

 

Dimitri Speck specializes in pattern recognition and trading systems development. He founded Seasonax, the company which created the Seasonax app for Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the old gold and silver fix in London. His commodities trading strategy Stay-C won several awards in Europe and was the best-performing quantitative commodities fund ever listed on a German exchange. For detailed information on the Seasonax app click here (n.b., subscriptions through Acting Man qualify for a special discount).

 

Charts by: Seasonax

 

Image captions by PT

 

 

 

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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

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