Sell in May? A brief study on SEASONALITY (and stock picks)I am sure many have heard the saying “Sell in May and go away” in recent weeks. There is certainly a lot of evidence that May and the months that follow it do not have great track record of performance--
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www.isabelnet.com
But does it mean BEAR MARKET? And are there any Seasonal Plays we could take advantage of? I think so. Some Sectors & Industries appear to generally do well (Gaming, Healthcare, IT/software) and others do poorly (Banking, Gold & Steel, Oil & Gas).
Criteria
Scanned Market Chameleon for Market Caps >$1 billion, Common stock types, with 7+ years of observations having good statistical success in May
(I made a quick indicator in Pine to highlight and help visualize the returns of a particular month over a span of time. It’s data may not line up with Market Chameleon’s Seasonality Screener results for a # of reasons, so I am giving them the final word and trusting their data over my script)
Market References
Market Indices ($SPY, $QQQ, $DIA, $IWM)
$VIX
-- The BEST Quadruplets of May --
Electronic Gaming & Multimedia ($EA, $TTWO, $ATVI, $ZNGA)
Good Sharpe ratios (0.92, 0.73, 0.49, 0.48)
Good Average and Median returns (median: 11.0%, 12.0%, 6.1%, 11.1%)
High % of Positive Occurrences (78%, 90%, 70%, 78%)
Aerospace & Defense ($HEI, $KTOS, $TDG, $WWD)
Good Sharpe ratios (0.98, 0.61, 0.56, 0.39)
Modest Average and Median returns (median: 4.6%, 13.0%, 5.2%, 2.9%)
High % of Positive Occurrences (89%, 70%, 60%, 70%)
Note: $HEI.A is actually technically a better performer than $HEI
Biotech ($REGN, $NBIX, $SRPT, $ALNY)
Overall Industry is strong in May
Great median and average returns
Note: This was a tough field as there are lots of good choices and ultimately comes down to the size of the standard deviation
Diagnostics & Research ($DGX, $ICLR, $ILMN, $EXAS)
Great Sharpe ratios (1.22, 1.19, 0.83, 0.72)
Great win rate
Low drawdowns
Honorable Mention: $CDNA scores great as well but does not have a ton of observations
Healthcare Plans ($UNH, $MOH, $CNC, $HUM)
Steady Eddy – low Standard Deviations, low drawdowns
Returns are nothing to write home about
Internet Content ($ZG, $IAC, $GOOGL, $NTES)
Pretty middle of the pack against other quads: good returns by median and average, good Sharpes, good % of positive returns
Packaged Goods ($STKL, $HAIN, $DAR, $BGS)
High win rate- 80%, 67%, 70%, 70%
Relatively speaking, drawdowns are not that bad to the Standard Deviation
Honorable Mention: $FRPT is a solid performer but not enough observations to be part of this group
Restaurants ($SHAK, $JACK, $TXRH, $CBRL)
Very high win rates- 100%, 90%, 80%, 70%
Modest returns, small draws
Chart is condensed because $SHAK hasn’t been listed for a long time (though there’s enough observations and its worth including into group) but here’s the chart w/o $SHAK--
Software Applications ($BMO, $WBK, $CS, $BBVA)
Incredible win rates- 100%, 88%, 75%, 88%
Worst returns/draws are TINY- 0.0%, -4.1%, -2.8%, -2.9%
Great Sharpe ratios
Not a ton of observations, smaller sample size
Software Infrastructure ($SPSC, $FIVN, $EVTC, $NEWR)
Great Sharpe ratios
Good Best returns vs Worst draws
Specialty Business Services ($CTAS, $UNF, $CPRT, $GPN)
Very high % of wins
Good Sharpe Ratios
Small Standard Deviations
-- The WORST Quadruplets of May --
Banks, Diversified ($BMO, $WBK, $CS, $BBVA)
High loss rates- 80%, 90%, 70%, 80%
The worst losses are, on average, about 3.2x greater than the best gains
High negative Sharpe ratios
Banks, Regional ($BBD, $ITUB, $BSBR, $FFBC
Great loss rates; average works out to a loss every May
The BEST gains are very small- +4.9%, +2.9%, +1.7%, +1.6% compared to the WORST draws- -23.0%, -20.5%, -17.4%, -13.6%
High negative Sharpe ratios
Farm & Heavy Construction ($OSK, $CNHI, $NAV, $CAT)
Small BEST gains compared to WORST draws- worst draws are about 3.44x greater than best gains
Mediocre negative Sharpes, modest negative averages/medians
Gold ($HMY, $GOLD, $NG, $BTG)
Industry as a whole seems seasonally depressed in May
High negative Sharpe ratios
Note: don’t confuse the TVC ticker for Gold (US$/oz) for the STOCK of the COMPANY $GOLD
Oil & Gas, E&P ($CPG, $MUR, $VET, $SM)
Oil & Gas industry in general is a terrible May performer
Industry in a general downtrend
High negative Sharpe ratios
Draw % isn’t terrific but the months that this industry gained are not strong
Oil & Gas, Equipment & Services ($FTI, $TS, $RES, $CLB)
Oil & Gas industry in general is a terrible May performer
High frequency of draws
High negative Sharpe ratio
Chart doesn’t do justice reflecting the WORST draws for May- averaging the worst comes out to -22.5%
Oil & Gas, Integrated ($E, $EC, $PBR, $SU)
Oil & Gas industry in general is a terrible May performer
Very high negative Sharpe ratio
Relatively low Standard Deviations
Specialty Industrial Materials ($FLS, $GE, $TRS, $XYL)
High draw % in May
Low Standard Deviations
Steel ($MT, $GGB, $SID, $CLF)
Very negative Sharpe ratios
Big Standard Deviations
High % draws in May- 80%, 90%, 70%, 80%
Tough field to select 4 from- industry in general does poorly in May
Telecom ($TEF, $VEON, $VIV, $TKC)
Good negative Sharpe ratios- -0.78, -0.65, -0.62, -0.58
Modest Standard Deviations
High % draws in May- 80%, 89%, 70%, 80%
Industry seems in a general long-term decline
Utilities - Diversified ($CIG, $OTTR, $AES, $ELP)
Good % draws in May- 78%, 70%, 70%, 70%
Despite general up-trend in Industry, does seem to do poorly in the month of May
