Now that April is in the books that old Wall Street adage of “Sell in May and Go Away” is making its annual tour around the world of financial media. The reason this is such a commonly rehearsed phrase this time of year is that it was one of many seasonality trends first introduced by Yale Hirsch in his book, The Stock Traders Almanac.
The theory is rooted in historical research which shows that stocks tend to experience their worst performance between the months of May and October. Alternatively, the best months of the year typically occur between November and April, which is what we're going to cover in this post.
Notice how significant the disparity in average return is between these two six month timeframes.
I can't believe it's already been two weeks since Chart Summit India. Together with our partners, we hosted 20 of the best speakers and thousands of participants to raise money for charities fighting the COVID-19 pandemic.
There were more than 10 hours of content in one day, so today I went back through some of the presentations again and wanted to share some of the information I found valuable.
All of the speakers were great and the videos can be accessed for free at ChartSummit.com/India, so we'd highly encourage you all to check them out. There's a lot of knowledge to benefit from.
As May gets under way, it’s time to review positions with May options that remain open (haven’t already hit profit targets or been stopped out).
Most trades I put on for All Star Options tend to have a minimum duration of 30 days (short premium plays) and often as long as 6-8 months (for long premium plays). As options approach expiration, greeks like theta and gamma start to become my enemy and whipsaw my P/L. Therefore, as options and spreads get into the expiration month, my best practice is to put each position on notice — it’s time to take action.
The best part about the end of the month is that there's always a fresh batch of Monthly Charts waiting for us. We only perform this exercise once the candlesticks are completed, which in this case was Thursday April 30th. It takes me about half an hour to get through them all, which represents roughly 6 hours of my entire year's work. I promise you from the bottom of my heart that there is no single part of my entire process that I find more helpful than this monthly chart review.
You see, this process forces us to take a step back, and gives us no choice but to identify the direction of the primary trends. We use these to put shorter-term trends into context. So no matter what your timeframe is, I think first identifying primary trends, and then working our way down from there, is a huge advantage over a blind bottoms/up approach.
Here are the things that stood out most during my review:
There has been a lot of chatter about the outperformance from Health Care recently. One of the industry groups benefitting from this strength has certainly been Biotechs so we're going to dive into that space today and take a look under the hood.
This week's Mystery Chart is a long-term ratio chart of the Nasdaq Biotech ETF (IBB) relative to the Nasdaq 100 (QQQ). Thanks to everyone for participating. Responses were pretty mixed this week as the chart is at a bit of an inflection point as it tries to hammer out a bottom at key prior lows from 2007-08 and 2011.
Since most of our upside risk management levels have been broken, our broader short thesis is no longer valid. The short-term momentum remains to the upside, so let's talk about what sectors will benefit and the next logical target for the major indexes.
Chris Ciovacco is someone whose work I've followed for many years. His approach to markets is similar to mine, in that he incorporates a weight-of-the-evidence technical strategy. His open-mindedness and ability to set up multiple outcomes to prepare for, is one to be admired. In this episode, Chris walks through his thought process when analyzing the current environment. He makes a great comparison to early 2009 and asks whether we're in January '09, just before another severe decline in stocks, or in May, on the way up after already bottoming.
If you are caught between a rock and a hard place, you are in a difficult situation where you have to choose between two equally unpleasant courses of action.
In many Indian stocks that is exactly where many market participants find themselves.
For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
