Updated

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--

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 (, , , )

-- 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

Trade closed: target reached

Figured I would come back around and see how all of these did. The results were pretty shocking to me, in the sense that everything that seasonally does well seemed to underperform and most everything that seasonally does poorly had its best month of May on record. I followed some of the industry/sectors in my own trades for the month and had mostly poor results. For example throughout the month I took various long positions on , , and and did pretty well except for had a red candle on OPEX (5/21) eroding most of those gains.

Suffice to say, either Seasonality is a crapshoot or there was something very unique about this May having traditional sector rotations/asset classes reversed (inflation data perhaps?). Here are the results--
Seasonal Longs:

EA, TTWO, ATVI, ZNGA: +4.08%, positive but under-performed
HEI, KTOS, TDG, WWD: +3.90%, positive but slightly under-performed
REGN, NBIX, SRPT, ALNY: +3.69%, positive but slightly under-performed
DGX, ICLR, ILMN, EXAS: -0.22%, negative, bad performer
UNH, MOH, CNC, HUM: +1.18%, positive, underperformed
ZG, IAC, GOOGL, NTES: 0.54%, negative and bad performer
STKL, HAIN, DAR, BGS: +0.19%, barely positive, underperformed
SHAK, JACK, TXRH, CBRL: -7.35%, did terrible
SPSC, FIVN, EVTC, NEWR: -4.42%, did terrible
CTAS, UNF, CPRT, GPN: -1.08%, did poorly

Seasonal Shorts:
- BMO, WBK, CS, BBVA: +10.39%, one of its best May's on record
- BBD, ITUB, BSBR, FFBC: +8.63%, its best May and only May in the green/positive
- OSK, CNHI, NAV, CAT: 5.49%, good month for May
- HMY, GOLD, NG, BTG: +13.25%, Best May on record
- CPG, MUR, VET, SM: +21.40%, insanely good and best May on record
- FTI, TS, RES, CLB: +27.05%, best May on record
- E, EC, PBR, SU: +7.09%
- FLS, GE, TRS, XYL: +6.16%, best May on record
- MT, GGB, SID, CLF: +8.63%, this used to be an average month in the 2000 through 2010 era before it became a bad performer, so back it its old ways?
- TEF, VEON, VIV, TKC: +5.26% best May on record
- CIG, OTTR, AES, ELP: -0.39% negative but not that bad

chrism665

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chrism665