May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P. 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 compounded to $816,984 for November-April in 64 years compared to $221 loss for May-October. The same hypothetical $10,000 investment in the S&P 500 compounded to $607,883 for November-April in 65 years compared to a gain of just $8,090 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 losses.
In the years since 1997, DJIA’s May performance has been abysmal, up only seven times in the past seventeen years (three of the years had gains in excess of 4%). NASDAQ suffered five May losses in a row from 1998-2002, down – 11.9% in 2000, followed by seven sizable gains in excess of 3% 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 and #5 Russell 2000.
Based upon the S&P 500, Monday before May option expiration is much stronger than expiration day itself albeit weaker for small caps. Big caps have registered six losses in the last twenty-five years. Expiration day is a loser across the board. The full week had a bullish bias that has faded in recent years and down four straight, 2009-2012. Since 1998, the week after options expiration week is bearish. DJIA has fallen in ten of the last sixteen weeks after.
On Friday before Mother’s Day the DJIA has gained ground thirteen of the last twenty years and on the Monday after (the first day of options expiration this year), the blue-chip average has risen in fifteen of those years.
The first two days of May trade higher frequently and the S&P 500 has been up 17 of the last 25 first trading days. A bout of weakness often appears on the third, fourth, fifth and fifteenth trading days for large cap stocks but the middle of the month tends to be better.
| May (1950-2014) |
| |
DJI |
SP500 |
NASDAQ |
Russell
1K |
Russell 2K |
| Rank |
|
9 |
|
8 |
|
5 |
|
6 |
|
5 |
| #
Up |
|
33 |
|
37 |
|
26 |
|
24 |
|
23 |
| #
Down |
|
32 |
|
28 |
|
18 |
|
12 |
|
13 |
| Average
% |
|
-0.04 |
|
0.2 |
|
0.8 |
|
0.9 |
|
1.3 |
| 4-Year Presidential Election Cycle Performance
by % |
| Post-Election |
|
1.3 |
|
1.7 |
|
3.4 |
|
3.2 |
|
4.6 |
| Mid-Term |
|
-0.7 |
|
-0.9 |
|
-1.2 |
|
-0.1 |
|
-1.9 |
| Pre-Election |
|
0.03 |
|
0.2 |
|
1.8 |
|
1.2 |
|
2.7 |
| Election |
|
-0.8 |
|
-0.2 |
|
-0.7 |
|
-0.5 |
|
-0.2 |
| Best & Worst May by % |
| Best |
1990 |
8.3 |
1990 |
9.2 |
1997 |
11.1 |
1990 |
8.9 |
1997 |
11.0 |
| Worst |
2010 |
-7.9 |
1962 |
-8.6 |
2000 |
-11.9 |
2010 |
-8.1 |
2010 |
-7.7 |
| May Weeks by % |
| Best |
5/29/70 |
5.8 |
5/2/97 |
6.2 |
5/17/02 |
8.8 |
5/2/97 |
6.4 |
5/14/10 |
6.3 |
| Worst |
5/25/62 |
-6.0 |
5/25/62 |
-6.8 |
5/7/2010 |
-8.0 |
5/7/10 |
-6.6 |
5/7/10 |
-8.9 |
| May Days by % |
| Best |
5/27/70 |
5.1 |
5/27/70 |
5.0 |
5/30/00 |
7.9 |
5/10/10 |
4.4 |
5/10/10 |
5.6 |
| Worst |
5/28/62 |
-5.7 |
5/28/62 |
-6.7 |
5/23/00 |
-5.9 |
50/20/10 |
-3.9 |
5/20/10 |
-5.1 |
| First Trading Day of Expiration Week: 1990-2014 |
| #Up-#Down |
|
19-6 |
|
19-6 |
|
16-9 |
|
18-7 |
|
13-12 |
| Streak |
|
U1 |
|
U2 |
|
U2 |
|
U1 |
|
U1 |
| Avg
% |
|
0.4 |
|
0.4 |
|
0.4 |
|
0.4 |
|
0.1 |
| Options Expiration Day: 1990-2014 |
| #Up-#Down |
|
11-14 |
|
12-13 |
|
12-13 |
|
12-13 |
|
11-14 |
| Streak |
|
U2 |
|
U2 |
|
U2 |
|
U2 |
|
U2 |
| Avg
% |
|
-0.1 |
|
-0.2 |
|
-0.2 |
|
-0.2 |
|
-0.1 |
| Options Expiration Week: 1990-2014 |
| #Up-#Down |
|
14-11 |
|
13-12 |
|
14-11 |
|
12-13 |
|
14-11 |
| Streak |
|
D1 |
|
D1 |
|
U2 |
|
D1 |
|
D1 |
| Avg
% |
|
0.3 |
|
0.2 |
|
0.3 |
|
0.2 |
|
-0.2 |
| Week After Options Expiration: 1990-2014 |
| #Up-#Down |
|
14-11 |
|
15-10 |
|
16-9 |
|
15-10 |
|
19-6 |
| Streak |
|
U1 |
|
U1 |
|
U1 |
|
U1 |
|
U1 |
| Avg
% |
|
-0.2 |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.4 |
| May 2015 Bullish Days: Data 1994-2014 |
| |
1,
4, 8, 12, 28 |
1,
12, 28 |
1,
8, 19, 28 |
1,
12, 28, 29 |
1, 4, 12, 27, 28 |
| |
|
|
|
|
|
| May 2015 Bearish Days: Data 1994-2014 |
| |
5,
6, 21 |
5,
6, 7 |
7,
20 |
5,
6, 7 |
7, 14 |
| |
|
|
|
|
|