Thursday, May 8, 2014

Keystone's May Seasonality Factors for Trading the Markets

"Sell in May and Go Away." All traders are familiar with this age-old saying. The bulk of stock market gains are made each year, on average, between November and April. The period from May thru October is typically flat returns, a paltry 1.5% return for the whole period, so the sell in May adage does ring true. May typically ushers in low volume and sideways markets.  The month of May is typically a flat month with a 0% return expected for the broad indexes. The sell in May adage worked--initially--last year with markets peaking in May 2013 and then tumbling lower to the June bottom, but instead of remaining weak into Fall, markets printed new highs in late July and never looked back. 

The dollar tends to do well from January through April each year but the dollar did not get the memo since the USD is down to 79.26 at multi-month lows. Perhaps the dollar strength will be right-translated this year and appear in May and June? The dollar tends to be weak from July thru December. Natty gas tends to run up from now thru the summer as the air conditioning load grows. Natty has traded flat this year after popping and dropping in February. July and August see the strongest demand for A/C. Oil tends to stall in May.  The geopolitical tensions are ongoing, however, which may override seasonality. Gold tends to peak in May-ish and then move lower into August, then higher thru the end of the year as the Indian marriage season occurs from September on. Fertilizer stocks such as POT and IPI tend to move sideways to sideways lower in the period from May into June.

The Jobs Report on 5/2/14 prints a market top thus far. The month of May begins at 1883.95. Congress is in session which is a market negative.  OpEx week is the week of 5/12/14 where Monday (5/12/14) is typically up and the period from Tuesday into Wednesday (5/13/14 moving into 5/14/14) is typically upHousing Starts, a key market barometer, are released on 5/16/14.

The markets are closed in Observance of Memorial Day on Monday, 5/26/14. This creates a three-day holiday weekend and typically the broad indexes are bullish the two days prior which are 5/22/14 and 5/23/14. This is due to traders paring back short exposure since positive news may occur over a long happy weekend. The trading ends for the month on Friday, 5/30/14, where the monthly charts receive new prints.

On the esoteric side, a Bradley turn date is yesterday, 5/6/14. The Bradley model does not predict market direction but instead that a market trend change, or drastic melt-up or melt-down should occur in the 4/29/14 through 5/13/14 window and typically the inflection point will be closer to the date at 5/2/14 (currently a top) through 5/9/14 (tomorrow). The next Bradley turn is a major turn for the year on 7/16/14 so an important market top, or bottom, is likely in July. Keystone's Eclipse Indicator targets 5/22/14, give or take a couple weeks before and after, as an area where a market top will occur. Despite its esoteric nature, the eclipse indicator has a very good track record. The target for the significant market top based on the eclipse dates is 5/8/14, now, through 6/6/14. May may be an exciting month. If the eclipse indicator kicks in negativity and markets drop through May into June, the major Bradley turn area in early July may target the potential market bottom.

The full moon is 5/14/14 and the new moon is 5/28/14. Markets tend to move higher through the full moon (5/13/14 through 5/15/14) and tend to move lower through the new moon (5/27/14 through 5/29/14). Marry the expected OpEx buoyancy with the full moon buoyancy and the period 5/13/14 through 5/15/14 would be expected to be bullish. Back tracking, markets may be potentially weak from now into Monday, 5/12/14, or Tuesday, 5/13/14, where a bottom would be placed. The 5/19/14 through 5/21/14 period may be bearish since it would lead into pre-holiday bullishness 5/21/14 through 5/23/14.

Lastly, if May turns out to be a strongly negative month down about -5% or more, the following two months, June and July are typically up strongly with a +12% gain over the two month period. Interestingly, last year, 2013, followed this pattern with the sell in May dropping markets into the June bottom and then the wild upside market behavior continued afterwards. Thus, market bears would be better off to see steady-eddy weakness in May rather than a drastic sell off of -5% or more. Well, have you decided to sell in May, and go away?

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