Keystone's May Seasonality

"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.

As a side note, April finished as a negative month, the first negative month of 2012, and the first negative month since November 2011, five months ago. April is typically up 1.2% so some of the money is being taken off the table after the stellar bullish market gains from Fall 2011 thru March 2012. Also of interest is that when a month is typically trending in one direction all month long, such as April with the move down, the last few days of the month sees a reversal of the trend and right on cue, the broad indexes moved up the last few days of the month.

The dollar tends to do well from January thru April each year but this year the dollar is flat to weaker all year long. The dollar tends to be weak from July thru December. Perhaps the dollar will show some strength in May-June ahead of the fall seasonal weakness. The dollar has not behaved as would be seasonally expected for about a year now.  Last year showed dollar weakness into this time period where a dollar recovery surfaced.

Natty gas tends to run up from now thru the summer as the air conditioning load grows higher. July and August are the key hot months with the strongest demand for A/C. Oil tends to stall in May and considering the back drop currently, perhaps WTIC (West Texas) and Brent Oil may start to trend lower. Last year oil headed lower in this time period right on cue. 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. This year, however, gold has struggled after the February high. If the weakness already in place continues, gold may drift lower until the calvary arrives in August. Fertilizer stocks such as POT or IPI tend to move sideways to sideways lower in the period from May into June.

The Jobs Report is this coming Friday, 5/4/12. Congress is in session from 5/7/12 thru 5/18/12 so this two week period causes a negative vibe to markets due to political idiots bickering and passing legislation that hurts rather than helps. The Senate is in session at the tail end of the month but the House is not so the main market negativity due to Congress in session occurs during the first half of May.  OpEx week is the week of 5/14/12 where Monday (5/14/12) is typically up and the period from Tuesday into Wednesday (5/15/12 moving into 5/16/12) is typically up. The 5/16/12 date is important since Housing Starts and the FOMC Minutes are released.

The markets are closed in Observance of Memorial Day on Monday, 5/28/12. This creates a three-day holiday weekend and typically the broad indexes are bullish the two days prior which is 5/24/12 and 5/25/12. This is due to traders paring back short exposure for fear of positive news occurring over a long weekend.

On the esoteric side, the next Bradley turn date is in June, 6/12/12. The last date was 4/23/12, which resulted in a large down day but the trend change that followed was actually up to finish the month of April.  The full moon is 5/5/12 and the new moon is 5/20/12. Markets tend to move higher as the full moon approaches and tend to move lower as the new moon approaches.

For the Presidential Cycle, the third year of the cycle is the best for the markets, which was last year, 2011, but the year finished flat and was lucky to recover to the flat line.  When the third year closes with less than a 10% gain, the following year is down 10% on average, which would be this year, 2012. Considering the gains the markets have enjoyed thus far in 2012, this outcome would be quite a dramatic move for markets as the year moves along should the seasonality occur. Also of interest is that the only two years the markets were negative in the third year of the Presidential Cycle were during the Great Depression in the 1930's.

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. Thus, market bears would be better off to see simple steady-eddy weakness in May not exceeding a 5% down move for the month.