As of the today’s close, the slower moving MACD “Sell” indicators applied to DJIA and S&P 500 are still positive. Recent mild losses are adding up and MACD is on the verge of issuing a sell signal. To turn S&P 500’s slower moving MACD “Sell” indicator negative, a single day loss exceeding 12.02 points (0.50%) is needed. DJIA’s MACD Sell indicator will turn negative tomorrow if DJIA fails to gain at least 12.33 points (0.06%).
Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both issue a sell signal.
For the Record
Our Best Six Months Switching Strategy or “Sell in May” works. Any research to the contrary that goes back to 1900 on the DJIA (or even further back), is way too far back. Sell in May is an old British saw, soundly based on inherent behavioral finance patterns and the collective cultural behavior of the investment community, but it did not truly become a tradable investment strategy until after WWII.
The issue with starting way back then is the world is a much different place now than 100-plus years ago. Prior to about 1950, farming was a major portion of the U.S. economy and from 1901-1950, August was the best performing month of the year, up 36 times in 49 years (market closed in August 1914 due to World War I) with an average gain of 2.3%. July was the second best month, up 31 of 50 with an average gain of 1.5%. June was fourth best, averaging 0.9%. Why, you may ask? Simply: planting, sowing, reaping and harvesting. As crops were planted and then brought to market and sold, cash began to move and so did the stock market.
Agriculture’s share of GDP began to shrink post World War II as industrialization created a growing middle class that moved to the suburbs where hard-earned salaries would be spent filling new homes with all the modern conveniences we all take for granted now. Farming became more efficient and fewer and fewer people worked on the farm.
Suddenly, summer was less about the hard work of harvesting crops and more about vacations and relaxing. As the economy evolved and peoples’ lives changed, the market evolved. June and August went from being top performing months to bottom performing months. August went from #1 to #10 in 1950-2016 with an average DJIA loss of 0.2%. June went from #4 to #11 (–0.3% average loss). The shift in DJIA’s seasonal pattern is clear in the following chart. “Sell in May” is a post WWII pattern, prior to then it would have been “Buy in May”.
![[DJIA 1 Year Pattern]](/UploadedImage/AIN_0617_20170511_DJIA-1-Yr_Seasonal.jpg)
Back in 1986 we showed how most of the market’s gains were made in the “Best Six Months (BSM)” from November to April and that the market went sideways in the “Worst Six Months (WSM)” from May to October and is most susceptible to major declines during the Worst Six Months. From April 1950 to October 2016 the S&P 500 has gained 2420.72 points versus 264.31 points in the WSM. These six months combined have produced an average DJIA gain of 7.6% since 1950 compared to an average gain of just 0.4% during the months May to October.
We have improved the results of the strategy using the MACD technical indicator. Back in 1999 the late Sy Harding enhanced the BSM strategy by employing Gerry Appel’s MACD to improve entries and exits and dubbed it, “the best mechanical system ever.” Over the years we have refined the strategy further by corroborating more than one MACD, looking for confirmation across major market indices and taking MACD triggers earlier in the month.
While we never condone completely going away, we will be using our Seasonal MACD Sell signal as a call to action. We will let our winners run, trim weak and/or underperforming positions from the Almanac Investor Stock and ETF Portfolios and seek to begin adding some downside protection and/or defensive positions. When NASDAQ’s Seasonal Sell Signal triggers sometime on or after June 1 we will likely further strengthen our defensive posture.