Tuesday, May 7, 2013

Technical Tuesdays: Seasonal Weakness Is A Global Affair

Investors hear so much re the "sell in May and go away" axiom that a little factual data and analysis might be of interest. To help illuminate the topic, the accompanying terrific chart (click image to enlarge) comes courtesy Alec Young at S&P Capital IQ. It illustrates the global markets and their historical monthly performance. The data speaks for itself. But why is this seasonality the case?

It has been noted in prior blog postings that the seasonality aspect of the markets is reflective of the economy and corporate earnings and the propensity of economists and equity analysts to be just a touch more optimistic at certain times of the year than is warranted. This shows up in one of the data points that Blue Marble Research Advisory produces, the Macro Economic Reports Indicator (MERI), which is similar in concept to Citigroup's Economic Surprise Index. What the MERI has shown thus far in its five years of existence is that mid year forecasts are notoriously off the mark in whatever direction the economy is perceived to be headed (economists and equity analysts are, after all, only human). Therefore, in each of the past four years the projections of economists and equity analysts have tended to be too optimistic, which produced downside surprises. So, when stocks roll along in the first quarter, the prospects for disappointment are enhanced. Accordingly, it's no surprise that May through September are not the best of market times.

Investment Strategy Implications

A picture is worth a thousand words. In this case, does the picture have predictive value? Well, if investing is anything it's a game of playing the odds. And the odds are clearly not in favor of higher highs of any significance in the coming months. (Oh, by the way, that often sets up a market top - a point noted in last week's Technical Tuesdays post.)


Technical Tuesdays is a product of Blue Marble Research Advisory and illustrates selected elements of market intelligence analysis. Market intelligence analysis - along with fundamental and thematic analyses - form the three-legged stool of the analytical approach employed by Blue Marble Research Advisory.

To learn more about Blue Marble Research Advisory services and its integrated approach to investment strategy and decision-making, click here!

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