stock trader’s almanac.
stock trader’s almanac.
Many of you have heard of the old stock market adage "sell in May and go away". In this report, I will examine this trend seasonal and research how you can benefit from studies of seasonality. We will use the U.S. S & P 500 index as Reference FTSE100 our steps in the United Kingdom who did not follow the Seasonality also.
Before going further, I must warn that the performance past are no guarantee of future results, however, with a long history of this traditional system must be considered. In addition, my goal is to analyze the facts and the form of profits, rather than speculate why markets tend to be lower in the summer months.
In short, the S & P500 has always been strongest from November to April from May to October. Being outside the stock market and take the shortest period performance improvement can make a simple purchase and a capacity of 12 months, the strategy. In addition, the risk can be reduced, he says, each months, are invested in the market taking risk, being outside the market for 6 months of the year just to reduce their risk by 50%
A study of the price action of the S & P 500 of 30 April 1945 to April 21, 2006, shows interesting results. The S & P 500 rose an average of 7.1% during the period from November to April over the same period (without dividends reinvested), there was an average increase only 1.5% from May to October. Moreover, the period from November to April May to October exceed 68% of the time.
History shows that S & P 500 is the worst month of September, and the worst period of three months is the third quarter. October is traditionally a month when the market establishes a funds, so that the S & P 500 between November at a fairly low compared to other months. This gives the period from November to April, the advantage of starting on a lower base. January also tends to be a very good month, with optimism, New Year and pension funds tend to invest more money in April also sees many people add to their retirement plans.
An interesting study has been conducted by the Stock Trader's Almanac, which has demonstrated strength of seasonality. Follow this would happen with an investment of $ 10,000 in stocks that comprise the Dow Jones Industrial Average.
Money invested in Dow stocks (you can use the DIA Exchange Traded Fund or an extension of Wall Street bet to achieve the same effect) in the "best six months" and then switched to fixed income in the worst "six months" more than 56 years rose to $ 544,323. But money invested in the Dow Jones in the "worst" six and then switched to fixed income in the "best" six aggravated by a $ 272 loss.
The following table shows the seasonality of the S & P500 and as you can see the gains come at the beginning and the end of the year, be market outside from May to November 1.
How the seasonality of the trade
A simple way would be a paris on the financial margin. You can buy one betting on the spy, which is the S & P500 to control the stock of November 1 to April 30 and the switch to cash for the weakest months. Your stop would be about 30% below the index, and if the S & P 500 is trading at 1300 SPY 130.00 stop would be 30% below 91.00. With Case 30% were not concerned about short-term changes.
Another way would be to use the fixed-odds paris with rel = "nofollow" href = "http://www.betonmarkets.net"> You can use http://www.betonmarkets.net paris Bull bet that the S & P from 1 November until April 30, then use the paris Bear to support the S & P to nothing more than a 3% increase on 1 November is April 30. So, if the Netherlands would win market, if it is turned on its side or even less than 3% that could win. You can change the order of 3%, but this would reduce their returns, but it would be a less certain bet.
What keeps throughout the summer?
As we have seen all the S & P 500. If you look at the sectoral indices S & P since 1990, which is as far as I could find reliable data, it appears that better withstand defensive sectors during the period from May to October, and even make a profit.
One of the best sectors were Consumer Staples, bore large, species-rich, such as Procter & Gamble, Altria, Pepsico, Colgate Palmolive and Cocoa Cola
Thus, instead of going to the box for the month lower that could leave their money in the Select SPDR Consumer Staples ETF (XLP). The average yield what has been over 4.8%, so adding this to 7.1% (the yield of positive months) is at 11.9% yield bet that the S + P 500. More 15 years, he gave a yield of 8.8% per year (without dividends reinvested).
Conclusion
Because the value of a trader or investor is worth taking the time to study the seasonal patterns, particularly those with a long history. The strategy described above in the most basic you to capture most of the stock gains this year and still get a return on investment for your interest for the month you withdraw from the market. A Strategy slightly greatest risk would be to turn to a defense sector in the month as the lowest cost can be done efficiently with an Exchange Traded Fund.
Stock Trader’s Almanac: Dow 10,500 by June?
