Wednesday, April 23, 2014

“Sell in May and Go Away”

And just like that, we’re almost done with the month of April. So you know what that means? The ‘Sell in May and Go Away’ chatter now begins. Does it work? Does it not work? Should we always sell in May? Why does it work? Where does this come from? What if I’m more long-term? What if it’s a midterm election year? All great questions.
Let’s begin with where this originally came from. The old saying is officially,
“Sell in May and go away. Stay away till St. Leger’s Day”
The inference here is that there’s no point owning stocks during the summer. The big boys won’t get back to business until Horse Racing season in England is over in the Fall. The British have been celebrating this day in September since the St. Leger Stakes (last leg of the English Triple Crown) was established in 1776. In America, we like to call this time of the year, “Football Season”.
So should we listen? Does the math behind this make any sense? I think it does. If you use the Dow Jones Industrial Average and go back to 1950, the statistics are simply staggering. Hypothetically, had you invested $10,000 but only owned stocks between November 1st through April each year, on April 30th of 2013 that $10,000 would have been worth $775,055. That’s pretty awesome. Now, had you done the exact opposite and purchased the Dow Industrials every year on May 1 and sold on Halloween, you would have actually lost $687 over the past 63 years.
4-22-14 10k invested 1950 and avg perc
Look at the average percentage moves. You can choose to ignore those numbers if you want. But I like to think that seasonality is against us as we enter the summer season. Call me crazy.
But it wasn’t always like this. In fact, before 1950 it was profitable to be a buyer in May. At the time, farming was the big driver of the US economy, so this made August the best month of the year from 1901-1950. Today, farming makes up less than 2% of the US Economy, so since 1987, August has actually been the second worst month of the year for the Dow and S&P.
Here is the one-year seasonal pattern from the Stock Traders Almanac. Look at the difference between the pre-1950 period compared with the behavioral patterns since then:
 4-22-14 1 yr seasonal since 1901
During mid-term election years, the numbers get even worse. Remember, this is traditionally the worst year of the 4-year Presidential Cycle. So the “worst six months” statistics warn us even more. The average return during this upcoming 6-month period on midterm years is -0.43%. The stats don’t lie. Here is the Presidential Cycle Composite chart for the S&P500 going back to 1928. Notice how historically, major bottoms are put in during the Fall of midterm years:
4-22-14 Presidential Cycle
Based on the Presidential Cycle and 6-month cycle, we are entering a period of time where the US Stock market tends to struggle. But if history is any indication, this could be one of the best buying opportunities we’ve had in years. But we’ll worry about that when the time comes.
I’ve been bearish about US Stocks all year long. This is just another feather on the hat for the bears and I don’t see any reason to be optimistic about the US Stock Market Indexes. There will always be individual non-correlated names that do well; that won’t change. But as far as the market as a whole is concerned, I will continue to keep a bearish/neutral stance. At least for now.
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Billionaire Warns: Yellen Collapse ‘Will Be Unlike Any Other’ / 22 Apr 2014 05:27 PM
Another horrific stock market crash is coming, and the next bust will be “unlike any other” we have seen.
That’s the message from Jeremy Grantham, co-founder and chief investment strategist of GMO, a Boston-based firm with $117 billion in assets under management.
Grantham pulls no punches when he discusses who he holds responsible for the coming financial carnage. In a recent interview with The New York Times, he calls Federal Reserve Chair Janet Yellen “ignorant” and said the Federal Reserve all but killed the economic recovery.
He also says that he isn’t putting his clients’ money into the market right now.
“We invest our clients’ money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other central banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before.”
Grimly, he adds, “It’s going to be very painful for investors.”
Grantham isn’t the only one worried about a market collapse.
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Nasdaq Shorting Opportunity

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Coca-Cola Enterprises Inc (NYSE: CCE)

Coca-Cola Enterprises, Inc. produces, distributes, and markets nonalcoholic beverages. It provides still and sparkling waters, flavored waters, juice and juice drinks, sports drinks, energy drinks, teas, and coffees. The company offers its products primarily under Coca-Cola, Diet Coke/Coke Light, Fanta, Coca-Cola Zero, Capri-Sun, Schweppes, Sprite, Chaudfontaine, Minute Maid, Oasis, Dr. Pepper, Monster, Nalu, Relentless, and POWERade Energy brands. It distributes its products through retailers, wholesalers, and other customers; and through licensed territory agreements in Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden.
To review Coca-Cola’s stock, please take a look at the 1-year chart of CCE (Coca-Cola Enterprises, Inc.) below with my added notations:
1-year chart of CCE (Coca-Cola Enterprises, Inc.)
Over the last (10) months CCE has trended overall higher, while during the most recent several months the stock has formed a trend line of support (green). Always remember that any (2) points can start a trend line, but it’s the 3rd test and beyond that confirm its relevance. However, the stock also had a key level of support at $46 (red) that should act as resistance if CCE’s rally continues.

The Tale of the Tape: CCE has a trend line support and a $46 resistance. A long position could be entered on a break above $46, or on a pullback to the trendline, with a stop placed below the level of entry. A short position could be entered if CCE were to break below trendline or if the rally continues up to $46.
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David Einhorn: “We Are Witnessing Our Second Tech Bubble In 15 Years” – Full Letter

We have been saying for about 6 months that the second coming of the tech bubble is here. We are happy to learn that none other than hedge fund manager David Einhorn agrees. From his just released letter to clients:
We have repeatedly noted that it is dangerous to short stocks that have disconnected from traditional valuation methods. After all, twice a silly price is not twice as silly; it’s still just silly. This understanding limited our enthusiasm for shorting the handful of momentum stocks that dominated the headlines last year.
Now there is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand, and what might pop it.
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3 High-Yield ETFs Every Investor Should Own

Stock market volatility is sending some investors in search of safer investments.
Tech stocks in particular have been falling, with the Nasdaq dropping more than 5% in the last month.
For most investors, “safety” means two things: income and diversification.
One of the best investments for earning high yields and diversifying your portfolio are ETFs. Like mutual funds, ETFs often invest in more than 100 securities.  (more)

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