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Worst Six Months Officially Begins in May

May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P.

 

By Jeffrey Hirsch

 

To wit: “Sell in May and go away.” Our “Best Six Months Switching Strategy,” created in 1986, proves that there is merit to this old trader’s tale. A hypothetical $10,000 investment in the DJIA(NYSEARCA:DIA) compounded to a gain of $1,008,721 for November-April in 68 years compared to just $1,031 for May-October. The same hypothetical $10,000 investment in the S&P 500 (NYSEARCA:SPY) compounded to $757,335 for November-April in 68 years compared to a gain of just $9,079 for May-October.

May has been a tricky month over the years, a well-deserved reputation following the May 6, 2010 “flash crash”. It used to be part of what we called the “May/June disaster area.” From 1965 to 1984 the S&P 500 was down during May fifteen out of twenty times. Then from 1985 through 1997 May was the best month, gaining ground every single year (13 straight gains) on the S&P, up 3.3% on average with the DJIA falling once and two NASDAQ(NYSEARCA:QQQ) losses.

In the years since 1997, May’s performance has been erratic; DJIA up ten times in the past twenty years (three of the years had gains in excess of 4%). NASDAQ suffered five May losses in a row from 1998-2001, down – 11.9% in 2000, followed by eleven sizable gains in excess of 2.5% and four losses, the worst of which was 8.3% in 2010. Since 1950, pre-election-year Mays rank poorly, #10 DJIA and S&P 500, #7 NASDAQ, #6 Russell 1000 and #5 Russell 2000(NYSERCA:IWM).

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