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 dollar tends to do well from January through April each year and this seasonality rang true.  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 been an outperforming commodity this year and has pulled back over the last couple weeks so this pull back may lead the way to another high, especially if Mother Nature turns up the temperature quickly moving into summer time, in the Northern hemisphere. July and August see the strongest demand for A/C. Oil tends to stall in May.  The Middle East tensions are growing, however, which may override seasonality.  In 2011, WTIC (West Texas) and Brent Oil followed the seasonality pattern but last year oil increased in price due to the central banker money-printing and ECB pledging to 'do whatever it takes'.  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. Gold followed this pattern in 2011 and 2012. Fertilizer stocks such as POT and IPI tend to move sideways to sideways lower in the period from May into June (although POT has taken a strong bounce over the last two weeks).

The Jobs Report on 5/3/13, typically the first Friday of each month, created a wild upside orgy in the stock market with the SPX moving above 1600 and the Dow Industrials above 15K.   Congress is in session which is a market negative.  OpEx week is the week of 5/13/13 where Monday (5/13/13) is typically up and the period from Tuesday into Wednesday (5/14/13 moving into 5/15/13) is typically up. Housing Starts, a key market barometer, are released on 5/16/13.

The markets are closed in Observance of Memorial Day on Monday, 5/27/13. This creates a three-day holiday weekend and typically the broad indexes are bullish the two days prior which is 5/23/13 and 5/24/13 (reference Keystone's Pre-Holiday Market Signal on the Other Market Signals page). This is due to traders paring back short exposure for fear of positive news occurring over a long happy weekend. The month ends, EOM, on Friday, 5/31/13 where the monthly charts receive new prints.

On the esoteric side, the next Bradley turn date is in June, 6/22/13, and it is a major turn. 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 6/17/15 to 6/28/13 window.  Keystone's Eclipse Indicator targets 4/10/13 (which turned out to be a top) and 6/10/13, give and take a couple weeks each way from each date, as potential windows for a major market sell off.  The full moon is 5/25/13 and the new moon is 5/9/13. Markets tend to move higher through the full moon (5/23/13 through 5/27/13) and tend to move lower through the new moon (5/8/13 through 5/13/13). Also of interest is the solar flare maximum cycle which occurs this year, the peak of the 11-year solar cycle. Solar flares have not been occurring this year, as would be expected, although an M-class erupted on Friday. Perhaps this signals a ramping up of the solar flare action. Solar events are important since they affect radio transmission, electronics devices, and communications, and also affect the human psyche. Interestingly, the August 2011 waterfall crash began just as a large solar flare erupted and hit the earth a few hours later.

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.