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.

5 comments:

rask3 said...

Hi,

Ain't it amazing that market anomalies such as the January Effect and May Meltdown continue to exist?


Whatever the rationale for their existence, should we join the crowd
or go against them? For e.g. if a May Meltdown is a given, that would present opportunities, such as shorting the index in April.

Just a hunch.


Rask

Salvatore_Dali said...

rask3,

if this current mkt was a normal mkt, i would be in sydney or kyoto already for holidays ... but we are in the midst of a bull mkt, which may or may not tackle the month of May differently ... just better to err on the side of caution, plus the added euphoric feng-tau Chinese markets ... need to be able to sleep at night.

rask3 said...

Hi Dali,

Can you clarify what "normal market" means puhleeeez? In 1993 even a four year-old kid could have made money in the stock market, by throwing darts at a list of stocks. Would you call that a normal market?


Just curious.


And how about a less glamorous Koh Samui, for holidays?


Rask

The Mumbling Priest said...

Aiyoh Dali, how now? China raised reserve requirements the weekend after your post (before May 1st). And US ran up too. Now Shanghai's closed till next Monday. You speculated that China won't announce until after the hols... but they did. How now? Pls advise

Salvatore_Dali said...

my honourably discharged ex-priest,

if you read carefully, i already said that increases in interest rates , yuan, reserve requirement WILL NOT yield the correct result for the authorities ... I am expecting other fiscal measures ... they have tried the Land Appreciation Tax which is now being enforced strictly and that has needed the developers to top up a lot of millions before starting a project, that effect is slow in working through the system but eventually its like pouring water into a pail, we don't know when it will overflow, but the officials won't stop till it overflows ... hence I am expecting NEW fiscal measures after the holidays - could be on refusal to allow second mortgage on properties; higher deposit rates on property purchases; a tax on capital gains from stockmarket (that is the devastating one); a hefty capital gains tax on property disposed within 1 or 2 years... I am betting that from the speeches made at the assembly recently and the press releases and monetary tightening moves, the officials are hell bent on stemming the bubbling stocks and property markets.