"Sell In May" Rings True & The Madness Of Crowds

The earlier blog on the warning to sell in May now looks more important than ever. Below are the performance of major markets since 13 May 2006 to date:

1) India Sensex 30 -23.5%
2) Korea Kospi -14.9%
3) Japan Nikkei -13.8%
4) Jakarta Composite -13.6%
5) Taiwan Taiex -11.7%
6) Singapore ST -9.4%
7) HK Hang Seng -7.7%
8) Australia ASX -7.6%
9) Malaysia KLCI -6.3%
10) Dow Jones -5.6%

The top losers were not that surprising as they have had a spectacular run up over the last 6 months, especially India and Japan, but Korea was a bit of an anomaly as its performance mirrors that of Malaysia, so the gravity of the correction was confounding, and the fact that hedge funds have not been big participants there adds to the mystery. The plausible explanation the nabbing of the chaebol bigwig in a corruption case.

Despite the bigger correction in commodities, Australia's index held up surprisingly well. This is important for depth of the current market. What is even more interesting is that most US indices held up probably the best of the lot. On the back of a strengthening dollar, which certainly will be short lived, their strength may indicate some investors pulling back funds from foreign markets back to US shores.

What is more interesting is looking at the performance of various markets, it is mainly a correction in over-pumped markets, such as India, Japan and Jakarta (thanks to Calpers as a leading indicator again). The same scenario is reflected if you were to look at Turkey and Russia, both attracted huge funds from investors. Hence, when a correction comes along, you will find the media overhyping, blowing out the situation or making it out for more than what it really is - a correction of liquidity driven markets prompted by a much needed correction in the super charged commodity prices. Our media is so prevalent nowadays, they need 100 bits of data and information flow per minute, top and bottom banners, and will analyse everything to death. Have you tried to watch 10 minutes of CNBC, overload of information man... If you have a house on fire, and you have 2 reporters from 2 papers, that should be adequate, but now every time there is a calamity, you have ten thousand reporters descending on it - and each of them try to stand out from the rest - to do that either you have to find a new angle for the story or over-hype the repercussions and infer graver and graver conclusions.

The markets look like to have almost finish discounting a rate hike by Bernanke end of this month. Looks better ahead.