• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Seasonality versus Simply Market Timing
Stock

Seasonality versus Simply Market Timing

by September 2, 2023
by September 2, 2023 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

According to the Stock Trader’s Almanac, the best six-month period runs from November to April. The worst six-month period runs from May to October. This is where the phrase “sell in May and go away” comes from. There is some validity to the best six months strategy, but investors would probably be better off with a simple timing tool. We will first investigate the best and worst six months, and then show the timing tool.

The chart below shows historic seasonal performance for the S&P 500 since 2004 (20 years). The red shading shows the worst six months, and the green shading highlights the best six months. There are some pretty good months within the worst six month period (May, July). There are also some so-so months within the best six month period (January, February).

I would like to show a different perspective on this seasonal pattern using an equity curve. The strategy buys the S&P 500 on the first day of November and sells on the first day of May. It is long the S&P 500 during the best six months and in cash the other six months. The chart below shows the equity curve for this strategy (green line) and the equity curve for the S&P 500 (blue line). There is a pretty strong positive correlation with S&P 500 performance as both curves rising and fall together. Avoiding the worst six months did not provide immunity to broad market swings and the Maximum Drawdown was 47.5%. The red shading shows the best six months outperforming in 2001 and 2002 because it missed some big declines in September. Avoiding drawdowns is an important part of our strategies at TrendInvestorPro (here).

Now let’s turn the tables. We will now buy the S&P 500 on the first trading day of May and sell on the first trading day of November. These are the worst six months. Being long during the worst six months did not keep up with buy-and-hold. However, we can see a positive correlation with buy-and-hold (blue line). The green and red arrow lines show the equity curve rising and falling along with the market. The red shading shows the equity curve falling as the market rose in 2010, 2011 and 2012. 

 Even though the best six months strategy performed admirably, it did not preserve capital as it experienced a 47.55% drawdown in February 2009. Seasonal patterns are interesting and sometimes work, but they are not that great for timing and avoiding drawdowns. The next chart shows the equity curve for a strategy that buys and sells the S&P 500 based on the 5/200 day SMA cross. Buy when the 5-day SMA for the S&P 500 crosses above the 200-day SMA and sell when the 5-day crosses below. The Maximum Drawdown was limited to 20.53% because the 5/200 cross triggered timely sell signals in 2000 and 2007. Also notice that the drawdowns in 2020 and 2022 were shallower.

This 5/200 cross is part of the Composite Breadth Model (CBM), which is used for broad market timing at TrendInvestorPro. The CBM has been bullish since March 31st (2023) and this means stock strategies are active. We are currently running momentum-rotation strategies that trade Nasdaq 100 and S&P 500 stocks on a weekly basis. In testing, these quantified strategies handily outperformed buy-and-hold and did so with much lower drawdowns. Click here to learn more.  

—————————————

You Might Also Like
  • Earnings for 2023 Q2, Still Trending Up
  • The Finances Look Good For Equity Trend
  • Bullish Fed News, Big Tech Booms on AI Buzz, and How to Play the New Megatrend
  • Battle of the Elders: Grandpa Russell 2000 v. Granny Retail
Share
0
FacebookTwitterPinterestWhatsapp

previous post
Plenty of Setups Emerge as Bulls Regain Control
next post
You MUST Be Aware of This Seasonality Change

You may also like

Covered Calls: Dipping Your Toes In the Options World

August 2, 2023

What Can We Expect from Stagflation?

April 27, 2023

SCTR Report: The Palantir Trade Follow-Up—Transform Insights into Actions

November 19, 2024

What Lies Ahead For End-of-the-Year Equities?

December 8, 2023

The AI Boom That Catapulted Tech’s Impressive Weekly Outperformance

June 2, 2023

The Best Five Sectors, #6

February 10, 2025

Pesky Breadth Divergence Persists

May 31, 2023

Top 5 Stocks in “Go” Trends | Fri May 17,...

May 17, 2024

DP Trading Room: Why the PMO is Better Than the...

February 26, 2024

Trade War Mayhem? Here’s How to Cut Through the Noise!

April 11, 2025

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout, pulls outlook

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025
    • The Unpredictable Stock Market: How to Make Sense of It

      May 8, 2025
    • AMD CEO calls China a ‘large opportunity’ and warns against strict U.S. chip controls

      May 7, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,632 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,339 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,320 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,302 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,186 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout,...

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Carley Garner: How I Survived in...

    March 6, 2023

    S&P 500 Rises From Bearish to...

    April 25, 2025

    The BULL Case for BITCOIN

    May 3, 2024
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here