May tends be a time of the year when the bears take control of the market. There is an old adage “Sell in May and Go Away”. Is history repeating?
Global Market May Cycle
This time last year – the start of May 2011 – the US market peaked, Crude-oil dropped -10%, and the Eurozone crumbled under the weight of the debt crisis.
In past three years the US & German markets have dropped at least -16% from the April-May peak. You will note that the German market peaked back in mid-March and is leading global sentiment lower.
Figure 1: The German DAX overlaid on the S&P500 index
The Aussie April-May Cycle
The Australian market tends to peak in mid-April (see cycle in past three years) and sell down into the end of June.
Figure 2: The ASX market cycle
The average pull-back for the Aussie market has been around -15%.
The reasons behind this cyclical weakness include:
• Banking shares ease after going ex-div
• Tax loss selling
• Commodity prices tend to pull back into mid-year
May 2012
May This Year
• US: traders are waiting for another catalyst to push their markets higher now that the earnings season is coming to an end. However the Federal Reserve will probably not move on QE3 until after the US elections later this year.
• Eurozone: the debt crisis remains an issue. Geopolitically many eurozone governments are changing hands and the newcomers are being voted in because they have pledged to push for less austerity and more growth in the region, calling into question the primary prerequisite for qualifying for any further bailout funding. European unemployment is at a 15-year high, officially 11%.
• Australia: still captive to overseas sentiment and we have lagged in the past six months. We will be held hostage to any Chinese and global slowing in growth; the materials sector has failed to participate in the rally from late last year and is proving to be a stumbling block for our market performance.
Australia
Our market has been underperforming the US and Europe in the past six months, as was the case at the same time last year and we still suffered from the downdraft of the selling in the overseas markets in May-June-July 2011. Aussie dividend payers remain the focus for investors, with the official RBA cash rate now down at 3.75% and set to head lower as the year progresses.
The Trade
One of the great benefits of being a D2MX Retail client is that the trading team has strategies that can help clients either protect themselves from this potential move, or better still, profit from it. If you would like to discuss protecting or profiting from the “May Cycle of Selling” then call the D2MX Trading Team on 02 8226 3332 or 1300 610 024.
Michael Hevern
Investment Adviser
D2MX Retail Trading
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
Tags: ASX, australian market performance, eurozone, german market, market cycles, Trading Strategies
