THE MAY/JUNE “DISASTER AREA”
Here’s a bit more on seasonality from the Stock Trader’s Almanac. They cite the month of May as the beginning of the “disaster area” for equities:
◆ “May/June disaster area” between 1965 and 1984 with S&P down 15 out of 20 Mays
◆ Between 1985 and 1997 May was the best month, with 13 straight gains, gaining 3.3% per year on average, up 7, down 5 since
◆ Worst six months of the year begin with May
◆ A $10,000 investment compounded to $527,388 for November to April in 60 years compared to a $474 loss for May to October
◆ Dow Memorial Day week record: up 12 years in a row (1984-1995), down seven of the last 14 years
◆ Since 1951 pre-presidential election year Mays rank poorly, #10 Dow & S&P and #8 NASDAQ
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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Barry Ritholtz of TBP says that May is bad in most years, but it begins a very strong period in presidential election years. http://www.ritholtz.com/blog/2012/05/sell-in-may-and-go-awayexcept-in-election-years/
Will this year be the exception to the exception?
“What’s a trader to do?”
STOP TRADING. It’s a fools errand – go buy individual businesses that are currently out of favor with investors, sit back, and let the company make money for you. SO MUCH less stressful.
Shorting stocks here is the easiest trade in the world.
Everybody, excluding the long only CNBC and John Paulsen (Wells Fargo) types, knows the market can’t go up anymore. The PragCap commentators, all of which are bearish, the ZH commentators, retail via their huge outflows froms stock funds into bond funds and so on and so forth.
When we get our bear market, clearly in the very near future, there are going to be a million “told ya so’s”, presumably unlike in front of every other bear in history whereby the “masses” were caught flat-footed.
2012 will definitely go down as the most clearly visibile bear market in history with more prescient soothsayers calling for the inevitability of stocks’ inability to go higher than ever before.
Makes complete logical sense because it’s so untrue that the market tends to fool the majority of people most of the time.
Is this comment in earnest?
(f so, how does it square with your longer term bullishness?
(I confess to something of a mental handicap in dealing with sarcasm).
With all due respect, when I think of a contrarian investor he is one in who invests contrary to the current movement in the markets. Naysayers may have the loudest voice but clearly someone is buying and they are willing to do so at an ever increasing price.
ETF buyers are bullish, and in fact are having the greatest activity in the most aggressive long ETFs. We have a bifurcated market with half the participants running out of stock funds into bond funds, and the other half are giving their $ to hedge fund managers and active managers who are mostly long for now. It would be nice for us traders if current market sentiment was so one-sided. The AAII survey last week was split almost evenly between bulls and bears. What’s a trader to do? Market today is also ambivalent. PAT is still with us.
PA-A-A-A-A-T !!! such a great analogy!
Pat!
To win you must be flexible. None of us should care about being wrong. If you take Pat home and IT is NOT the sex you’d hoped for, quickly show Pat the door.
I remember lecturing a commenter in 2011 about making a call. Boy was I wrong.
The point is to do what he scolded me on. Be flexible to changing your view should u need to. Better to bring a yankees and red sox hat to the party if your job is to make money and no one told you which team your client bleeds. Everyone but Larry can do that.
@VII, YOU Really know how to hurt a die-hard Red Sox fan from Boston!!!
But I get your point. Don’t be rigid in your bullish or bearish stance. Be ready to change your mind when the facts change. However, I will always be a Red Sox fan, and a Celtics fan from my home town of Boston!
Just to clarify, I’m not bullish or bearish; I’m trying to be whatever the market is.
Analytically, for the moment, the cards line up bullishly. Prices seem to confirm this.
So long as this remains the case (and it can change overnight) I want to look for dips to buy, not rallies to sell.
I was attempting to point out that the current lack of the broader investment community’s willingness to suspend disbelief (i.e., everybody’s belief that “it has to go down”, or “it can’t go up”) is seemingly incongruent with the environments that have typically been associated with market tops in the past.
Spam filter really hated your wishy washy market position. It caught that comment three times.
I figured I had exceeded my comment quota over the past two days and you decided to cut me off…
Ha. No no. I don’t know why it got caught in the spam. It happens some times. Maybe weird formatting or something. Maybe the spam filter just doesn’t like your market stance.
I know, I’m a hen in a den of foxes.
“I was attempting to point out that the current LACK of the broader investment community’s willingness to SUSPEND DISbelief (i.e., everybody’s belief that “it has to go down”, or “it can’t go up”) is seemingly INcongruent with the environments that have typically been associated with market tops in the past.”
quadruple negatives in your statement, i cannot understand what you’re saying, could you clarify?
Besides the people that always think the market must go higher (Jim Paulsen @ Wells Fargo and all the other sell side strategists as well as long only mutual funds) there ain’t much bullishness out there.
This is the reason there is but one of me on sites like this pounding the table. Where there 10 of me here it’d be different, but thats’ not the case.
The thousands of portfolio managers out there saying the only alternative to equities, bonds, are not attractive in this environment, so by default they are flocking to equities, particularly dividend-yielding equities. Those guys are not on these sites….
I don’t disagree.
As is clear from my previous comment, had you read it, as I indicated “besides…long only mutual funds…there ain’t much bullishness out there”.
Problem for your attempt to refute my claim is that these guys are always bullish, all the time.
You’re resentful and arguing just to argue now.
Two days ago in a post you managed to state the following, in three different comments:
1) secular bull call looking great
2) no way we’re in new secular bull
3) I can see us going to 1500-1800 but no way we’re out of the secular bear.
You seem confused.
The investment folks you cite as “always bullish” are in fact the majority of the investment universe. Long/short managers such as yourself are a pimple on the ass of the equity universe – thus the negative sentiment you cite from guys that populate these cites is erroneous because the folks that matter (i.e. long-only mutual funds and the like) are being forced into equities as a result of NO ALTERNATIVES, regardless of current negative sentiment toward the environment.
Plus, back at the October 2011 lows, the investors you label as perpectually bullish were hiding out in treasurys – now they’re all in….
“Two days ago in a post you managed to state the following, in three different comments:
1) secular bull call looking great
2) no way we’re in new secular bull
3) I can see us going to 1500-1800 but no way we’re out of the secular bear.”
#1) This what I said:
“If in fact you are right that we are now in a secular bull, IMO that would be one of the most brilliant calls of all time – looking good so far!”
That comment was laced with sarcasm since at the time the market was up after the ISM manufacturing beat, and I was acknowledging that you were right thus far (i.e. for a couple of hours before the market drifted lower throughout the day).
#2) If we’re in a secular bull, I assume you believe it started in March 2009. By the secular definition of let’s say 17 years, that means the secular bear that started in 2000 lasted for 9 years…….case closed.
#3) I don’t see why it’s unreasonable to say that we could rally to new highs within a CYCLICAL BULL WITHIN A SECULAR BEAR.
All my point with this entire two-day debate is to point out that A) markets are overvalued for reasons other than wild bullishness (i.e. lack of alternatives), B) there is more to the US economy than simply a couple of anecdotal manufacturing growth rates you and jaymaster provided, and C) it’s pretty obvious this secular bear has not ended given that secular markets last 15-17 years and secular bears typically end at multiples well under 10 times normalized earnings (unlike March 2009).
Plus, MOST long/short money managers are not all in or out one way or the other such as yourself. There is such thing as being cautious and ajusting exposure relative to the environment.
Thanks for clarifying (I’m better with multiple negatives than sarcasm).
The thing that does seem bullish is your clear prediction of SP 1800 within the next couple of years.
However, I’m gathering from your comments that such calls take a back seat to whatever ‘the market is telling you’ at any point in time.
Two of the best market watchers on the planet, Ned Davis and Jeff Saut, are currently CAUTIOUS. They must be the majority…..
Nobody is advocating for an outright short position – there is in fact such thing as adjusting net long exposure to the environment…i.e. very net long back in early October 2011 versus moderately net long here at higher levels….
Shorting stocks was the easiest thing in the world back in October when everyone and their brother was going on CNBC saying they were waiting for the coast to clear while they took shelter in treasurys. Now consensus is the US is muddling through, Europe will recover second half of this year, US equities are the best house in a bad neighborhood, and US stocks are the cheapest they’ve looked in decades.
Ned Davis himself discussed today how mutual funds are up to their nose in equities, and that the outflows currently crowding the headlines is a generational effect from baby boomers shifting toward higher-yielding securities such as bond funds and equity income funds. He notes that if individuals were truly worried about stocks then they wouldn’t be flocking to equity income funds – very good point, IMO.
http://www.gallup.com/poll/154478/Gallup-Seasonally-Adjusted-Unemployment-Rate-April.aspx
The fact that everyone here is looking for a dip to buy in on may be anecdotal evidence that any pull-back will be shortened/softened by those that are underinvested. Career risk.
Hopefully everyone was….. “following the price action” up just in time for the market to turn lower, “letting prices guide them” just in time for the market to turn lower, “not having an opinion on the market” just in time for it to turn lower.
Boy oh boy the pace of job growth from “booming” manufacturers is simply breathtaking….saddle up and ride this secular bull all the way up this phenomenal global growth curve!
Last comment was me…
Ben, you’re not showing too much class right now.
The market is down 115 bps right now today, and up 140 bps from the 1360 lows a few weeks ago, just for context.
Again, this isn’t about gloating or being right, but making money. As I said earlier, I will gladly admit to being wrong if the market decides to prove that.
Clearly, should today’s price action hold and gain momo moving forward, I was clearly wrong.
That said, for being long at 1360 and hedging at 1410 only to pull that hedge off yesterday, is the gap lower really a big deal in the big scheme of it all?
Further, to the extent that should the market sustainably fall here, which it may, I’ve always believed it’s likely to do so incredibly hard and fast, which in and of itself offers a great opportunity to be short.
So, thanks for taking my words and deciding to run you’re little victory lap around me, especially after constantly emailing asking what my view is.
Classy.
My oh my oh my, what is a trader to do with “Pat” now??? Up, down, sideways – goodness gracious which way does one turn?
I’m mocking no more than I’ve been mocked….Simply pointing out the danger in following professionals such as yourself that A) have the ability to change on a dime and B) don’t provide real time updates on positioning, thus rendering those following hanging out to dry.
We actually had a good dialogue going, which then took a turn once disagreement arose from the market’s breakout last week…..
Then that’s what you should of said, but you didn’t. You chose to, in one form or another, disparage and mock somebody who’s actually shared quite a lot with you via email that never really had to…
I apologize. Probably went a little far.
The folks over at Zeall LLC conduct some phenomenal LONG TERM market analysis – highly recommended. Here is the their latest essay on market tops the likelihood this secular bear resumes its decline once this cyclical peaks….
http://zealllc.com/2012/feartop.htm
Well, again sideway action was a right call made weeks ago, 2 months of going no where. Shorting oil has been difficult but has finally paid off, as well as holding PM’s shorts (though they managed to hold today. Will be interesting next week, important for gold and silver, and the EUR, this is what will catch my attention next week, what happens with the euro, if finally breaks down or not.
Treasuries managed to rally a bit more, but closing positions there I still think wasn’t a bad idea given opportunity costs, as we get into negative real rates territory and diminishing return on capital I find the space for upside small even if the downside risk is very small (better to be in quality corporate paper if you need exposure to credit markets).
I still look into NG but still unconvinced about entering yet, I don’t see the need for the rush in a potential commodity downward spiral. As for equities, don’t care about SPX (or DAX, or EM) if these markets start a new downtrend. Looking to the IBEX, MIB, excellent stuff, increasing exposure through martingales even if these markets decline 15 or 20% more may not be a bad idea, just ignore banks; however the opportunity cost and risks may be extreme, just like some people looking for investment options in Ireland stock market or Greece before more than one must have lost plenty of money. With such unstable situation, capital preservation comes first.