Friday, April 27, 2007
Ahead Of The Holidays
a) Better to reduce stock holdings substantially ahead of long holidays, and ahead of the tilting Chinese markets especially when they come back after the holidays.
b) Underlying tone of market still bullish for rest of the year. Will look for lower entry levels in a couple of weeks.
c) The May Factor. To sell in May and return after October is a good rule of the thumb, especially for "long only" players. In a revealing study: an investor who placed US$10,000 in the Dow average at the end of April each year since 1950 and sold at the end of October would have a net loss of US$272, while someone doing the opposite would have gained an astounding US$534,323.
There is a familiar saying in capital markets "Sell in May and go away", made popular by author Jeffrey Hirsch who publishes the Stock Trader's Almanac. It doesn't help that most of the major corrections have taken place between May and October. A factor which has not been cited for the May-October effect is bonuses/holidays. In order to put in the good figures for year end purposes, there has always been a covergence of interests for players involved to have a solid last quarter so that bonuses in the new year will be good. Plus, you have extended holidays with the last 2 weeks of December and the first week of January - hence you need the cash and peace of mind to have some fun. Generally nothing untoward will happen during end-December / early-January because of that.... a kind of financial detente.