Before I get to the “Sell and May” info I would like to go over a few things.
Today officially ended the mid-July seasonal weakness and as I have stated over the past few posts Wednesday brings a very bullish seasonal day with 71% of all those days (since 1985) advancing. It could be convenient timing indeed and one that could bode well for our ETF Extremes strategy.
Also, the gap from July 12th in the S&P closed today. Yesterday I stated “the S&P looks like it wants to close it 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) I think the probability of a short-term bounce looks likely. First, you must please remember that this this is only a probabilty so there is always a chance for the market to continue the current slide. However, given the “oversold” to “very oversold” in the larger benchmarks, S&P (SPY) and Russell (IWM), the potential for a short-term bounce seems like a reasonable expectation.
Now let us revisit the “Sell and May and Go Away” theory that I talked 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 the May-October.” I think that sums up the significance of the historical period known as the “Summer Doldrums”.
- Just look a 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 period known as the “Sell in May and go away” is rather flat and proves that the ”Summer Doldrums” are not a figment of the market’s imagination.
This year the old Wall Street adage began on May 3rd. Historically the period begins on the third trading day of May as the first two trading days are historically bullish. Sometimes it falls on May 3rd and sometimes not. It just depends on if the beginning of May falls on a weekend. But I digress.
This year the S&P (SPY) opened $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. You might be asking what am I trying to prove here?
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. Moreover, the SPX Short Iron Condor strategy has had three straight gains of 6.8%, 9.2% and 10.0%. Of course, we would have liked more signals over this time frame, but as we have stated ad nauseum, we will stick to the guidelines that brought us to over 130% gains on a cumulative basis.
As we always say, patience, patience, patience! While most were losing their shirts over the past few days our strategy was sitting comfortably on the sidelines waiting for the next opportunity. We like to average at least one trade per month in each of our strategies as most professional traders know “the less you trade the better”.
We also received a wonderful email yesterday from pro-trading-profits (formerly pro-option-profits). Shyam (the founder) sent this 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, such as QQQQ, SPY, IWM and DIA;
Short Iron Condor - Andrew’s latest strategy, which trades short iron condors on the SPX (S&P 500 Index).
While we have only just started tracking the condor strategy, the ETF Extremes strategy 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, wow! He states on his site “pro-trading profits tracks over 110 advisory services covering more than 180 individual trading strategies”.
We are certainly proud of our accomplishments since our service began and hope that we can continue to effectively teach others how we trade two of our favorite options strategies, the ETF Extremes and SPX Short Iron Condor. Knowing that we rank at the top of all services by an unbiased source is something that we are very proud of.
Okay, back to the topic at hand.
The trading range environment has set in and will most likely continue as the summer progresses.
So, the question is, how can we make money during the historically flat period from May-October. Well, look no further than an Iron Condor Strategy. An iron condor performs best during a range-bound environment. This might sound like an attempt at shamelessly promoting our SPX Short Iron Condor strategy and in a way, I admit, it is. It never hurts to learn an alternative investment strategy to see if it meets your risk profile and more importantly, if it can help you achieve a higher potential return in your overall portfolio. The strategy is not a “get rich quick” strategy and it has some obvious risks like any other leveraged investment strategy.
Andrew Crowder, www.crowderinvestments.com