Perspectives

TSP Charts: The Unfavorable Season

If you do not know about the favorable and unfavorable season for the stock market, you might want to check out our take on Sell-in-May.  Unlike many who write about it, I’ve extensively researched it.  It’s the only strategy that I found beats buy and hold over the full market cycle (bull/bear).  And it lowers your investor stress level too.

Spring ushers in the unfavorable season for equities.  Many use May as the start, but like the changing of the weather it does not start on one specific month or day. Journalist who use May and November for simplified research do not do the strategy justice.

The pattern has been researched going back 350 years to the UK’s early stock market.  It was seen in the DOW long before the SP500 was conceived and in the SP500 for over 60 years now.  While each year is different, it makes a compelling long-term strategy.  The fact that it is easy to follow is all the better.

 

9 May 2018 SP500

SP500 is following its primary price channel for now

When I analyse the stock market, I take the seasonal tendencies into consideration.  I use the TSP fund almanacs I developed for the C, S and F funds. I narrowed the seasonal tendencies down to each trading day in table form and produced seasonal price progression charts.  While the financial media are making up stories for why stocks went up today and down tomorrow, we sometimes just look at the almanacs and say the markets action is “right on time”.

Think about the fact that just about every economic indicator is seasonally adjusted, why wouldn’t you do the same with the stock market when analyzing it.  Commodity traders use seasonal patterns to earn higher profit from buying low, holding and selling high based on seasonal patterns.  Those who own large propane tanks and fill them in the off season when the cost is lowest are doing the same thing.

But for some reason investors resist considering seasonal investing in the stock market.  Wall Street would prefer you did not spend half your time out of their fee producing investments, so don’t expect them to push it.  Some write to discourage it with misleading cherry-picked data. Hard to believe wall street would do that.

We’ve added some objective trend analysis to our seasonal windows to improve our entries and exits.  It is not about catching market tops or bottoms.  Think of it more like trailering the sailboat before the hurricane season hits and not during the hurricane.

Currently, the SP500 is back and following its primary price channel that it started in early 2016.  There is nothing sacred about the channel and I do expect it to fall below this channel and its 200-day moving average this summer.  Our risk indicator is not pointing to an imminent crash, but the screws are tightening.

There is significant complacency in the market considering interest rates are marching higher and the Federal Reserve is telling us they are not going to prop up the markets like in 2009, 2011, 2013 and 2016… and 2010, 2012, 2014, 2015, and 2017 for that matter.

And no one expects a surge in the dollar. A surge in the dollar will punish the SP500 earnings like the declining dollar benefited them last year.  A reversal in the dollar’s trend might be the catalyst to the next stock market draw down.  I know the market leading tech sector with 61% of its revenue coming from overseas does not like a rising dollar.

I expect those of us following the seasonal strategy will watch the floundering from the sidelines this year – our boat safely stored away until next season. And if the next favorable season appears to come late, we will sit, wait and continue to watch.  It is that easy.

So when is this year’s seasonal weather going to shift?  You’ll have to sign up for my answer. If you want to sleep better this summer you might start by taking a look at our results page for how our seasonal model performed during the last two market cycles.

It’s easy to follow and I send e-mail alerts twice a year making it easier.  Our Spring Summary report is coming out soon.  I hope you can join us by then.

 

TSP & Vanguard Smart Investor