June 23, 2017

“Sell In May and Go Away” Revisited

Today officially ended the mid-July seasonal weakness and as I have stated over the past few posts Wednesday brings a new outlook, at least over the short-term. Tomorrow is the 17th trading day of July and brings bullish seasonality with 71% (since 1985) of the days witnessing a positive return. It could be convenient timing indeed and one that could bode well for our ETF Extremes strategy.

The gap from July 12th in the S&P closed today. Yesterday, I stated “the S&P looks like it wants to close the gap before any serious attempt upwards reconvenes”. Well, now that the gap has officially closed we will see if the bulls have enough left in the tank to push the market higher. Over the short-term (1-5 days) the probability of a short-term bounce looks likely. Given the “oversold” to “very oversold” state of the largest benchmarks we follow (check below) the possiblity for at least a short-term bounce seems like a reasonable expectation.

Now let us revisit the “Sell and May and Go Away” theory that I spoke about in early May and several times since. Below are just a few snippets of prior posts involving the old Wall Street adage.

  • The Stock Trader’s Almanac states “a $10,000 investment compounded to $544,323 during the November-April period over the last 56 years compared to a $272 loss for May-October”. I think that sums up the significance of the historical period known as the “Summer Doldrums”.
  • Just look at the historical average return of the S&P on a monthly basis over the last 60 years.

Jan. – 1.4%     Feb. – (0.2%)     Mar. – 1.0%     Apr. – 1.3%     May – 0.3%    

Jun. – 0.2%     Jul. – 0.9%     Aug. – 0.0%     Sep. – (-0.6%)     Oct. – 0.9%

Nov. – 1.8%     Dec. – 1.7%

As you can see the “Sell in May” theory has some validity and should be taken into consideration. The above stats proce that the “summer doldrums” are not a figment of Wall Street’s imagination.

This year the S&P (SPY) opened at $149.34 and now it currently stands at $151.30. This equates to a gain of $1.96 or 1.3% over nearly three months. Paltry indeed.

Well, as my loyal readers know signals in the ETF Extremes have been few and far between lately. However, when looking at the performance since the “Sell in May” period came to fruition the strategy has actually outperformed the market by 5.2% with only one trade during that time frame.

Moreover, the SPX Short Iron Condor strategy has had three straight gains of 6.8%, 9.2% and 10.0% for a cumulative gain of 26.0% duringthat period.

As I always say patience, patience, patience! While most options strategies and newsletters/advisory services were losing their shirts (or at least sweating the volatility) over the past few days the ETF Extremes strategy was sitting comfortably on the sidelines patiently waiting for the next opportunity with a high probability of a positive return.

We also received an email recently from www.pro-trading-profits.com (formerly pro-option-profits) that shows our strategies, particularly the ETF Extremes is still one of the top strategies even with the recent lack of signals. Shyam (the founder) sent this email out to his hundreds of newsletter subscribers.

“We have recently added a new service to the list of those that we verify – it’s Crowder Investments, run by Andrew Crowder. For anyone who is a regular reader of this newsletter, you’ll recognize Andrew from his regular Blog Report on the daily movement in the markets.

Crowder Investments run two trading strategies:

ETF Extremes: this strategy trades options on a number of different index tracking stocks susch as QQQQ, SPY, IWM, and DIA

Short Iron Condor: Andrew’s latest strategy, which trades iron condors on the SPX (S&P 500 index)

While we have only just started tracking the iron condor strategy, the ETF Extremes stratetgy boasts a 93.3% strike rate over nearly 18 months, making it one of the most accurate of the long systems we track.

One of the most accurate long systems that they track? Wow! He states on the site that they track over 110 advisory services covering more than 180 individual trading strategies and we offer one of the top strategies. We are certainly very proud of this accomplishment and hope to continue our success for years to come. To think that we rate among the top of all advisory services mentioned on Thinkorswim, Optionsxpress, and AOS is a wonderful feat indeed especially given that the ramkings are performed by an unbiased source which is really what means the most to us.

Join us for the ride!

Overbought/Oversold levels for July 24, 2007

  • SPY – 26.9 (oversold)
  • IWM – 14.7 (very oversold)
  • DIA – 37.9 (neutral)
  • QQQQ – 35.0 (neutral)
  • GLD – 82.7 (very overbought)
  • OIH – 58.1 (neutral)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service. We currently follow 2 stock options strategies in our investment newsletter, the ETF Extremes and SPX Short Iron Condor.

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com