Wednesday, July 06, 2005

Sell in May and Go Away: Summer Days

It's summertime.

Time to go to the beach, golf, and BBQ that jerk chicken (as I did this past weekend).

If you live here in Manhattan, I highly recommend a long stroll through Central Park once dusk has arrived and the tourists have headed back to their AC'd hotel rooms.

The park is quiet at dusk, as is Wall Street from June to August.

Summertime usually means a drop in daily market volume, as well.

Today, CNBC noted a familiar but important precept about price/volume action during the dog days of summer.

If the market falls or rallies on light volume, no need to worry.

It is ok -- you can go to the beach and trust your broker will handle business as usual.

On average, the New York Stock Exchange trades about 1.61 billion shares a day and the Nasdaq about 1.82 billion shares.

If you read page B2 of your Investors Business Daily every morning (like every good trader should), you'll be able to gauge the market's breadth without giving yourself the unneccesary ulcer.

After reaching highs late late Spring, the CBOE Volatility Index typicaly settles as the summer doldroms get underway. Here's some interesting data:
Over the 53 years from 1950 through 2002, the Dow lost a combined total of 1,909 points in the period May through October.For those years, the Dow gained 10,175 points during the November through April period.The same applies to the S&P. That index gained 971 points in the November-April period, and lost 72 points for May through October.These data are startling and not that easy to explain. It is not at all clear why the market should perform so well during the winter months, and so poorly during the summer months. It is quite clear, however, where the old Wall Street phrase Sell in May and go away comes from.
Trading picks up towards the end of August as Hamptonites return back to Broad street.

My feeling is that the Dow will end the year in the 10,600 - 10,800 range.

Interest rates are climbing at a steady beat and GDP growth remains modest.

The only thing holding investor exuberance back is the soaring cost of energy, a weakening dollar, and the already-well-documented concern over a real estate bubble.

Actually, that's a lot to have on your mind if you're out in Jones Beach, the market is still open, and you're headed over to the cooler for your fourth Corona...

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