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[The adage “sell in May and go away” refers to selling one’s stocks in May,
going into cash, and then waiting until November before buying back into the market. That] has worked the past two years…[This time round, however,] we believe there is a high probability that you would be buying at a higher price [in November] than… [what if you were to sell out] in May of 2012. [Let us explain why we are of that view.] Words: 406
So says Todd Feldman (www.bfiadvisors.com) in edited excerpts from his original article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Feldman goes on to say, in part:
We are forecasting that the high for 2012 will occur in the summer…[with] a high probability of a correction by the end of 2012 to the beginning of January. Therefore, we are suggesting the opposite for this year, buy in May and sell in October.
Why do we predict such an outcome? We use our own behavioral indicators to detect inflection points and cycles in stock markets. The current evolution of our US behavioral indicator suggests that we are in a cycle very much like 1986-1987.
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Below is an evolution of the S&P 500 price index during three periods. The starting point of the index is at a bottom in September of 1986, August of 2010, and October of 2011. Hypothetically, let us assume we are in April of 2011. Just by looking at the overlay it would suggest that 2010-2010 was tracking 1986-1987. However, the similarity ended in April of 2011. The S&P 500 topped out in April/May of 2011 whereas in 1987 the S&P 500 kept climbing.
The important point is that our U.S. indicator did not suggest a similarity with 1987 but [with]another year that signaled a bottom in August…This year, however, our indicator is signaling a similarity with 1987…[and,] therefore, the overlay is more meaningful today.
Figure 1: S&P 500 Price Index for Three Periods
(click to enlarge)
X-axis is the number of days. S&P 500 index price is benchmarked to 100.
Conclusion
Based on our analysis a pullback between 5-7% will occur sometime in April/May. It may be already here or it may occur in May. [As such,] we suggest that one take the opportunity to buy more SPY at any 5% pullback [and then wait until late summer/early fall] to sell…
*http://seekingalpha.com/article/487321-sell-in-may-and-go-away-no-buy-in-may-and-sell-away?source=email_macro_view&ifp=0 (To access the article please copy the URL and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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