In May I wrote a piece on the popular market adage, “Sell in May and go away.” The principle was cooked up after a study by the Stock Market Almanac into market timing. It researched when the best stock market performance is achieved.

Their research showed that returns from October to April were great, while returns from May to September were poor. Hence the rhyme, ‘Sell in May and go away, don’t come back until St. Leger’s Day,’ which is a horse race at Doncaster taking place tomorrow.

So how has selling in May and going away fared this year?

It was on the money. Between the time of writing that piece and now the market has fallen 11%.

Does that give it any credence?

No, none at all.

The reason for this is because it suggests that now is time to go racing back in… and to buy the market.

And that’s probably the worst advice of all…

Don’t come back on St Leger’s Day

According to followers of Sell in May, the market does worse in the summer because all the market’s investors go on holiday for three months.

A novel idea, but it conflicts with the complexity and hyper-competitive reality of the financial markets. As I said in May:

“If the market is going to fall this summer, which it probably will:

“Blame the deteriorating property market;

Blame the deleveraging investment banks; Blame the volatile debt markets;

Blame the stingy UK consumer; Or blame HM Revenue & Customs’ ill-conceived proposals.

“But leave St Leger out of it”

However, I take no pleasure in having made an accurate bearish prediction. If you have any negative prediction to make between now and the end of the year, chances are you’ll be right.

We are simply in the middle of a deep bear market.

Instead of dwelling on this… let’s do something a bit more constructive. Next week, I will be unveiling a mini-series, available exclusively to subscribers, that will tell you how to know when it is truly time to come back to the market.

How to time the market

So, over the next four weeks, the Fleet Street Letter is presenting a potential solution. These indicators might just give us the green light to know when confidence is coming back to market.

The spectacle of the credit crunch must not distract us from planning ahead. If we can spot the sea change, we stand to win big…

With this assembly of indicators, we’ll have a better idea of when it is safe to get back into the water.

When this time comes, we buy big.

And when that happens we return to the luxury of investing in a bull market. Don’t get me wrong, there are good investments in any condition. But, naturally, caution dominates our current agenda.

The indicator mini-series is designed to help us gain a potentially lucrative first mover advantage, when the pendulum swings from caution to exploiting the coming bull market.

This will be hitting your inboxes early next week. Stay tuned.

By the way, if you are partial to a flutter on St Leger’s Day, the radio tells me that Doctor Fremantle is in with a shout with odds at 7/1.

Have a great weekend,

Theo Casey
Investment Director
The Fleet Street Letter

Source: It’s Still Too Soon To Come Back to the FTSE