Thursday, April 25, 2013

May approaches

"Sell in May, go away."

I happened to stumble upon this mantra two years ago. I have been consistently watching Bloomberg and CNBC this past 12 months, and notice an increased use of this quote. It has influenced me to use it as well, but I felt like I was just spewing rhetoric that seems appealing to common investors. I wanted to find something empirical in order to find some truth in this, so I did some digging. It didn't take a lot of time (thanks to the power of the Internet) before I stumbled across this video:

With under 1,000 views, this YouTube presentation holds great technical analysis dating back to 1960's. The video tries to prove the "monday effect," "January effect," "holiday effect," and the "october to march seasonality effect." The last effect is the one in focus since I am discussing this "sell in May" discourse. At 35:40, there is a summarized chart that indicates that the return from April to September are almost flat- averaging to .5%. The other months average to 4.2%. This indicates that it may not be worth investing in equities for the next 5 months.

With the indices at nose bleed levels (subjectively,) a negative catalyst will send equities dropping. Based on the recent events of Cyprus, the Boston marathon bombing, and the fake AP twitter, the vulnerability of the market is apparent.

3 month out sentiments
AAPL @ $350
NFLX @ $200
JNPR @ $17

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