Should You Sell in May?

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April 22, 2012

Dear Readers,

May is fast approaching and that means the selling will soon begin.

Or will it?

The old investment adage, "Sell in May and Go Away," has long been touted as the sound theory for buying low and selling high. If you sell your stocks in May and buy back in October, you're usually better off.

The sell-in-May mantra is one of the best-known and most successful seasonal sell signals, made famous by the Stock Trader's Almanac.

The Almanac's "Best Months Switching Strategy" - which gets investors in and out of stocks at the start and end of the six-month periods - shows how profitable it can be to get out of stocks around May. It shows that a $10,000 investment between the May and October period since 1950 in the Dow Jones Industrial Average would be worth $6,724 today, whereas the $10,000 would have grown to $1.6 million in the November-April period.

According to the guys at Plexus Asset Management, the S&P 500 Index also proves the theory. Their research shows that the returns of the "good" six-month periods from January 1950 to April 2011 were 8.1% per annum whereas those of the "bad" periods were 2.4% per annum.

But this theory isn't perfect.

While the sell in May theory is generally true, it doesn't mean it always is.

If you go back from 1950-2011, the S&P 500 actually made gains 39 times between May and September, and only lost 23 times. That means the market actually has moved up 63% of the times in the last 61 years.

This theory also doesn't factor in an ever-changing investment climate. In the last decade, there have been some tremendous returns in the summer with 2009 returning nearly 19% and 2003 nearly 16%. In the last seven years, five of them have been profitable during the so-called "bad months."

Times are changing and with change comes great opportunity.

What about the Canadian Markets?

In past years, the Canadian markets have actually slightly mimicked the historical returns of the S&P 500.

According to Myles Zyblock, chief institutional strategist at RBC Capital Markets, owning TSX stocks between November and April, then switching into bonds for the remaining months, produced an annual return of 13.5% based on data from 1956 to 2011. That compares to a return of 9.2% for a buy-and-hold strategy for stocks and 7.7% for bonds.

His research showed that consumer staples, utilities and telecom consistently do better than the index between May and October, while information technology, materials (excluding gold) and industrials are the leaders between November and April.

Does that mean we should be out of our gold and precious metals stocks?

Not one bit. His research also showed that the TSX-listed banks and gold stocks tend to do well in the summer months. When you consider that all of the gold stocks have been completely oversold, the coming months could be a time where they significantly break to the upside.

Once the weak hands get shaken out, I fully expect that investors will slowly chip away at the offers in the coming months. While the summer may be slow for the rest of the markets, I don't expect them to be slow for precious metals stocks - especially the juniors where overselling has taken many of them far below their true value. If the selling keeps up, it may represent the greatest opportunity we have ever been presented in the last few decades.

With all of the stocks in the gold sector oversold, the time to hunt for bargains is now. It has been for the last few weeks. The charts show that a major rally is coming. If you're not looking now and getting ready to pull the trigger, you will likely kick yourself before the year is over.

The junior market is not for the weak. While I expect many of the gold juniors to climb, it doesn't mean it will be a straight line. Nor does it mean to buy every junior with a chart that has been trending down for the last year and trading at its 52-week low. The truth is, many of them are garbage. But amongst the filth, there are some with amazing projects and the people to back it up. Nothing is more important than that.

I've already zoned in on a few gold juniors that have been beat up, despite incredible drill results in some of the most promising areas on the planet. These companies all have great projects and great people that have made millions for their shareholders. More importantly, the companies that I am looking at now all have cash. In this market environment, having cash is king. You don't want to dilute your shareholders at these ridiculously low price levels by financing your next drill program in this market.

If you would like some help tracking down some of these gold stocks that meet both of these criteria, then make sure to open your emails in the coming weeks. I am getting ready to pull the trigger on some new investments which means you will have the opportunity to see what I buy and where I buy it.

Until next week,

Ivan Lo

Equedia Weekly

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Disclosure: I am long gold and silver through ETF's and bullion, as well as long both major and junior gold and silver companies. It's your money to invest and we don't share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn't mean they all will.

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How to Speculate Your Way to Success

Interview with Doug Casey, Casey Research Chairman

So far, 2012 has been a banner year for the stock market, which recently closed the books on its best first quarter in 14 years. But Casey Research Chairman Doug Casey insists that time is running out on the ticking time bombs. Next week when Casey Research's spring summit gets underway, Casey will open the first general session addressing the question of whether the inevitable is now imminent. In another exclusive interview with The Gold Report, Casey tells us that he foresees extreme volatility "as the titanic forces of inflation and deflation fight with each other" and a forced shift to speculation to either protect or build wealth.

The Gold Report: You told us about two ticking time bombs last September, Doug-the trillions of dollars owned outside the U.S. that could be dumped if the holders lose confidence, and the trillions of dollars in the U.S. created to paper over the 2008 liquidity crisis. It's been six months since then. Have we averted the disaster or are we closer than ever?

Doug Casey: Things are worse now. The way I see it, what's going to happen is inevitable; it's just a question of when. We're rapidly approaching that moment. I suspect it will start in Europe, because so many European governments are bankrupt; Greece isn't an exception, it's the norm. So we have bankrupt governments trying to bail out the European banks, which are bankrupt because they've loaned money to the bankrupt governments. It's actually rather funny, in a perverse way.

If it were just the banks and the governments, I wouldn't care; they're just getting what they deserve. The problem is that many prudent middle class people are going to be wiped out. These folks have tried to produce more than they consume for their whole lives and save the difference. But their savings are almost all in government currencies, and those currencies are held in banks.

However, the banks are unable to give back all the euros that these people have entrusted to them. It's a very serious thing. So European governments are trying to solve this by creating more euros. Eventually the euro is going to reach its intrinsic value-which is nothing. It's the same in the U.S. The banks are bankrupt, the government's bankrupt and creating more dollars so the banks don't go bust and depositors don't lose their money.

I'm of the opinion that if it doesn't blow up this year, the situation is certainly going to blow up next year. We're very close to the edge of the precipice.

TGR: Is the problem the debt, or all of the currency that has been pumped in?

DC: It's both. We have to really consider what debt is. It's the opposite of savings because savings means that you've produced more than you've consumed and put the difference aside. That's how you build capital. That's how you grow in wealth. On the other side of the balance sheet is debt, which means you've consumed more than you've produced. You've mortgaged the future or you're living out of past capital that somebody else produced.

The existence of debt is a very bad thing.

In a classical banking system, loans are made only against 100% security and only on a short-term basis. And only from savings accounts that earn interest, not from money in checking accounts or demand deposits, where the depositor (at least theoretically) pays the banker for safe storage of his funds. These are very important distinctions, but they've been completely lost.

The entire banking system today is totally corrupt. It's worse than that. Central banking has taken what was an occasional local problem, a bank failing from fraud or mismanagement, and elevated it to a national level by allowing fractional banking reserves and by creating currency for bailouts. Debt-at least consumer debt-is a bad thing; it's typically a sign that you're living above your means. But inflation of the currency is even worse in its consequences, because it can overturn the whole basis of society and destroy the middle class.

TGR: What happens when these time bombs go off?

Click Here to Continue Reading

More Casey Research Articles

> How Far to the Wall?

> Doug Casey on the US Constitution

> What Happens to Gold if We Enter a Recession or Depression?

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Screening for the New Top Sectors

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It's that time again. Every few months, I like running this screen to find the new Top Sectors. And now it's especially timely after this recent pullback, which really wasn't that big a deal, but where more and more people are saying that we're looking at a sector rotation.

So, that being the case, it's important to see what new sectors and industries are being rotated into.

And since roughly half of a stock's price move can be directly attributed to the group that it's in, it's important to stay on top of this.

Watch the video as Kevin Matras goes over the new Top Sectors and how to use them in your own trading.

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> Growth and Income Stock Picks with Analyst Research on Mattel (MAT) and Primoris Services Corp. (PRIM) Video - April 13, 2012

> Aggressive Growth Stock Picks with Analyst Research on Middleby Corporation (MIDD) and Lindsay Corporation (LNH) Video - April 12, 2012

> Momentum Stock Picks with Analyst Opinions on Old National Bancorp (ONB) and Old Dominion Freight Line (ODFL) Video - April 11, 2012

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Equedia Tips - The Markets Tab

Using the search function at the top right corner of the website, search for any company. Let's use Research in Motion as an example. Once you reach their profile page, click on the MARKETS TAB. You should now see 12 seperate tabs underneath their logo. Try clicking on them and you will find in-depth information such as:

Detailed Quotes - Depth/Level II - Options - Java Charts - News - Profile - Financials - Insiders trades - Filings - Analyst Consensus - Earnings - Historical Data (Highs/Lows, Volumes, Closing/Opening Prices)

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Search function: By far one of the most overlooked but important functions on Equedia. Using the top right hand corner search function, you can find and add any corporations, media users, or investors to your network.

Markets Tab: Under any corporate profile, you will find this tab. Under this tab, you can find the company's news, level 2 depth (delayed), options, charts, profile, financials, insider trades, filings, analyst overviews, earnings, and historical data (these may not be available for all companies)

There are many more useful features on Equedia.com but we think its better if you experience them for yourself. The more associates you have, the more useful Equedia will become for you. So use the new "invite my contacts" function and get started!

Forward-Looking Statements

Except for the statements of historical fact, the information contained herein is of a forward-looking nature. Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by statements containing forward-looking information.

Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that statements containing forward looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on statements containing forward looking information. Readers should review the risk factors set out in the Company's prospectus and the documents incorporated by reference.

Cautionary Note to U.S. Investors Concerning Estimates of Inferred Resources

This presentation uses the term "Inferred Resources". U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. "Inferred Resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of "Inferred Resources" may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an "Inferred Mineral Resource" exists, or is economically or legally mineable.