Sunday, April 30, 2017

Should you sell in May and go away?

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses the trading component of the Trend Model to look for changes in the direction of the main Trend Model signal. A bullish Trend Model signal that gets less bullish is a trading "sell" signal. Conversely, a bearish Trend Model signal that gets less bearish is a trading "buy" signal. The history of actual out-of-sample (not backtested) signals of the trading model are shown by the arrows in the chart below. Past trading of the trading model has shown turnover rates of about 200% per month.

The latest signals of each model are as follows:
  • Ultimate market timing model: Buy equities*
  • Trend Model signal: Risk-on*
  • Trading model: Bullish*
* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers will also receive email notices of any changes in my trading portfolio.

Sell in May?
The adage "sell in May and go away" has been well known to traders for many years. Indeed, the chart below shows that the stock market is entering a period of weak seasonality.

Should investors heed the cautious seasonal signal and avoid stocks? Let's consider the bull and bear cases before making a decision.

The full post can be found at our new site here.

Our Sale in May event
Announcing our "Sale in May" event! Get $1 off plus an extra month free off the first year of an annual subscription*. Use the coupon code May2017 at checkout.

* Offer is only available to the first 100 to sign up and expires May 31, 2017. Subscription date extension will be made after order processing.

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