It has been a great five months so far for stocks, as we get set for the blooming of the flowers in May. Unfortunately, the rebirth of your garden and everything that comes along with spring and summer doesn’t coincide with the best months for investing in the market, according to my stock analysis.
April tends to be characterized by rain, but it could also be the final leg of the current six-month bull cycle from November to April that has historically resulted in the best gains, according to the Stock Trader’s Almanac and its founder Yale Hirsch.
Just take a look at the recent five months from November. The S&P 500 has reported gains in five straight months, with a combined gain of 9.4%, based on my stock analysis.
According to the Stock Trader’s Almanac, the upcoming May–October period is considered the weakest six months for stocks, which is why you will soon begin to hear the common phrase, “Sell in May, and go away.” The historical records reflect the cycle. In the past half-century, the Dow moved up, on average, less than one percent from May to October but averaged over seven percent in the other six months, based on my stock analysis.
My stock analysis suggests that while the historical tendency is not foolproof, if I were a betting man, I might wager on the cycle proving itself once again this year as the stock market is currently stalling. (Read “Market Action Driven by Headlines; Investors Should Be Nervous.”)
Take a look at the chart of the S&P 500 below. Note the three blue circles that highlight the approximate May to October periods in 2010, 2001, and 2012. Note the decline during this bearish cycle, versus the market rally prior to this period, according to my stock analysis.
Could we be in for another decline this year? My stock analysis indicates the current stalling by the S&P 500 suggests this.
Chart courtesy of www.StockCharts.com
And while I’m not saying to completely go away, as there will always be trading opportunities, it will just become much more difficult to make money than the November to April period, based on my stock analysis.
So while spring is in the air, you may want to lighten up your positions, take some profits off the table, and spend more time in the garden, helping your plants grow rather than your investments. Of course, for many of you who are just like me, trading and investing are year-round activities, not just the six months ending in April. In this case, you may spend only a bit more time in the garden.