It’s that time of year again, “Sell in May and Go Away”, so I will upload up my annual post of statistics using the help of the Stock Trader’s Almanac written by Jeffery A. Hirsch and Yale Hirsch.

For the record, I don’t sell just because the calendar says May but I do enjoy sharring the statistical data (it is very interesting):

Worst six months of the year begin in May:
* All data is from the DJIA from 1950 to 2005

• A $10,000 investment in the DJIA compounded to $544,323 for the period beginning in November through April over the past 56 years (termed the best six months)
• Compare this to a $272 loss; yes I said loss for the same investment in May through October (termed the worst six months)
• 44 of the 56 periods ended with a gain in the November through April period
• Only 33 periods ended with a gain versus 23 losing periods in May through October
• The average gain for the November through April period is 7.9% (56 yrs)
• The average gain for May through October is 0.3% but the period did have an overall loss of $272 as mentioned above
• The best six months gained 11,691.79 Dow points over the 56 yrs (data ends in 2005)
• The worst six months actually lost 538.98 Dow points
• Top performing period for best six months was a gain of 29.8% in 1985 and then 25.6% in 1998
• Top performing period for worst six months was a gain of 19.2% in 1958 and then 16.9% in 1982
• The poorest performing period for the best six months was a loss of 14.0% in 1969 and then 12.5% in 1973
• The poorest performing period for the worst six months was a loss of 25.2% in 2002 and then 22.4% in 1974
• The best six months has only had one losing period in the past 22 years and that was only 2.2%
• The worst six months has had eight losing periods over the past 22 years with several in double digits
• Seven of the past eight years have been losers for the worst six months
• All of these results are based without timing the market using technical analysis
• Using a simple MACD indicator to time the entries and exits, the gain during the best six months rises up to $1,548,121 while the loss during the worst six months increases to $6,646.
• Finally, five of the last nine May months have been down for the markets; starting the period of the “worst six months”

One side note: the Stock Trader’s Almanac notes that the Nasdaq actually has a best eight month period from November to June.

For further detail, grab a copy of the Almanac as I buy one every year for the excellent statitical information and the great quotes.

For all CP sell articles, visit my category on selling or short selling!

Well, DRYS is now down 16.81% this week and volume is peaking at the largest level we have seen in years – huge distribution!

This is what I had to say a few weeks ago in my post titled DryShips (DRYS) Drying up?

All in all – I am not a buyer of the stock at this level. It may be a solid short term buy for traders that make these types of plays such as Blain and Rajin but it does not fit into my criteria for a trend trading opportunity.

I see a decent consolidation over the past few months but I have a problem with the current pattern that is forming if it does not test former highs near $130. Volume is increasing as it moves higher but the stock is starting to struggle near the last peak of $88.

I stick to my original analysis as I am watching the stock from afar or the weekly chart. I am not day trading DRYS or any stocks for that matter so I can cut through the noise and view the market on a weekly basis to assess the “true overall trend”. Don’t get me wrong, many traders made money on the recent spike in DRYS but I wasn’t touching it with a 10-foot pole. I look for the big runs and couldn’t be bothered with a few points here and there (and I am not about to support my broker with constant buy and sell commissions, even if they are minimal).

The easiest way to characterize this trade and the market in general is to view it all as a risk/ reward potential or an expected value, as I wrote yesterday. DRYS was not a +EV trade in my trading system but, it very well may have been an excellent +EV trade for a shorter term day trader such as Rajin or Blain.

Anyway, here are a few more charts that are starting to look suspicious (some more than others). The bottom line or point of today’s rant is the fact that I still feel that the market is headed for a decline or as I phrased it a couple weeks ago:
The Big Decline (long term perspective of course).

These charts are just examples as many more exist but they were some of the first I viewed Thursday night:

Read more »

“Higher oil, rate-hike fears and new regulations in the financial sector handed stocks their biggest beating in nearly a month…”

- Stocks Get Hit In Heavier Volume, By Vincent Mayo of Investor’s Business Daily.

There is some truth to the statement above but the charts have clearly been raising red flags that this market may be heading lower. I highlighted this trend over the past week or so I as I started to see the same faulty charts appearing on my screens. Visit these posts to see what I have been saying over the past week:

• The Big Decline
• DryShips (DRYS) Drying up?
  (By the way, DRYS was down 2.87% on above average volume – distribution)

The NASDAQ, DJIA and S&P 500 fell about 1.8%, 1.6% and 1.8% respectively as crude oil was up $1.69 to close above $123 a barrel (a new record).

I originally started to point out market troubles back on March 14, 2008 in a post titled Snapshot Friday; I highlighted both the Dow Jones and NASDAQ with clear yellow shaded areas showing the 200-day moving averages pointing down for the first time since 2003 (that’s huge if you ask me).

Yes the market is now higher than it was in March but the recent bounce is smacking up against the 200-d m.a. for the first time since 2003 for both indices. The last time the market crossed below a down-trending 200-d moving average and couldn’t recover was back in 2000 and 2001.

So what does that mean? As I said yesterday, I think it means a possible Big Decline.

The Dow Jones is now back below the 200-d m.a. and is failing to challenge recent highs. The day’s action came on above average volume which makes today pure distribution.

I hate to pick tops but we may be coming off the official top of the bull market that lasted from 2003 to 2007.

Read more »

I am a positive person by nature and I prefer to buy stocks going up but I am starting to see several leading stocks struggle to hold new highs or fail to challenge recent highs. These patterns are familiar and they are suggesting that the recent bounce is the final stage before a possible market decline. A perfect example can be the charts posted of DRYS yesterday.

Now, this big decline could take years to materialize so I don’t want to jump the gun and start yelling sell or short sell everything in sight. I trade to catch the mid to long term trends so time is on our side to determine what is happening.

• I don’t need to call the tops and bottoms of moves
• I just need to be able to identify the trend (if one exists) and then trade accordingly.
• It’s a fairly easy method of investing and doesn’t require watching the market every hour of every day.
• Trending markets are not very common to begin with but certain sectors, industries or markets are always forming some type of trend.

I will look to post up examples from former declining markets and will highlight what the charts looked like before those big declines.

Now, take a look at the charts of First Solar Inc. (FSLR). The market leader recently recorded new highs after the first correction since its IPO but it is now starting to churn. We have witnessed three consecutive weeks of churning action as the stock is not moving higher on above average volume.

I do admit that the overall trend is still higher but the red flags are starting to appear (with this stock and others).

Read more »

Jim Cramer was yelling about buying overvalued stocks on October 31, 2007 while I was continuously writing about selling, distribution days and taking profits. He also predicted that the banking stocks would be the top performers in 2007 - go figure (at least he paid his $50k bet for losing that prediction). YES, I did upload daily screens and stocks with the strongest relative strength ratings so I am not the superhero of calling this first bear market push but I feel very good about what I wrote (especially since the number of readers continues to increase - that says it all).

Looking back, I offered at least a dozen high quality, highly detailed articles about some type of selling, profit taking or market distribution days. Shame on anyone (including me) that ignored the signals as they slapped us in the face, week after week!

Take a look at some of the highlighted articles I wrote as the market was topping. I think this list contains some of the best work I have ever done on this blog or my former equity research website. Finding growth stocks and presenting them during an up-trend is the easy part. Selling and profit taking is the hard part; let me correct myself – selling is the hardest aspect to grasp when trading (in my opinion of course).

A Review of Articles Talking about Selling, Profit Taking and Market Distribution:

• 10/03/07: Is Shanghai a Nasdaq Déjà vu
  

  Well, the current two year rise of the Shanghai Stock Exchange Composite Index looks remarkably similar to the rise of the NASDAQ of the late 1990’s and the charts below explain better than I can!

• 10/04/07: A Technique for Profit Taking
  

  What do you do in a market like today when you have profits in multiple positions but you don’t want to give it all back? You want to continue to ride the winners but at the same time, you want to maintain the unrealized gains in your account. HOW?

• 10/12/07: Distribution Day
  

  This was the largest showing of volume in two months and is not healthy because it was pure distribution. It was only the second distribution day over the past month so we can’t call this a bear run but please be on the lookout for a possible correction of 5%-10%. Technology stocks led the decline as BIDU gave back 10% of its amazing run.

• 10/15/07: How to Make Money Selling Short
• 10/17/07: Inverse ETFs
  

  Have you ever wanted to short the market because you knew it was going down but your were too overwhelmed, nervous or even scared because you were unsure of how to do it. Well, Inverse ETFs may be your thing.

  These inverse ETF’s closed Wednesday with gains of 13.42%, 15.43%, 22.31% and 18.76% since I wrote about them.

• 10/18/07:The Real PTR Climax Run?
  

  I was early in September by trying to locate a climax run in PTR in this post:
  Petrochina (PTR) Climax Top? However, the HUGE volume on the latest push to new highs clearly indicates something is going on.

• 10/20/07: Second Major Distribution Day
  

  Technically speaking, we now have 4 distribution days for the NASDAQ and 3 for the DOW over the past month. It’s now time to start focusing big-time on the market leaders to see where they are going to take this market. If they start to roll over, you better be quick to take profits and even quicker to take losses.

• 11/01/07: CROX getting Swallowed
  

  I wrote a post titled Will CROX get Eaten? on September 20, 2007 and strongly noted the declining institutional support (see numbers below). Someone was jumping out of the stock and we now know why!

• 11/08/07: Market Corrections, Bears and the Big Picture
  

  Keep in mind that nearly 75% of all stocks follow the general market trend. Your cash doesn’t need to be committed to the market at all times. This philosophy is suited to making the most money in bull markets or markets trending higher.

• 12/11/07: When to Sell
  

  Why do so few books exist on the subject of “How to Sell”? Selling techniques are far more complicated than buying techniques and subject to considerably more emotional pressure, than those of buying.

I promise that I will get back to analysis and uploading charts by next week the latest. That’s what I love doing most anyway and it seems to be the biggest draw in traffic.