It was a consolidation week for the TSP. Friday was a tough day but, only the I fund closed below its 10DMA (Day Moving Average) line. For the week the C fund finished up 0.02%, S fund down 0.52%, I fund down 1.21%, and F fund down 0.22%.

It’s the beginning of May which brings to mind the old stock market adage, “Sell in May and go away, and come on back on St. Leger’s Day”. This Old English adage still applies today! This concept has evolved into what we now call Seasonal Trading Strategy. We get into Seasonal Trading in this post along with the 6 month daily TSP charts.

Before we get into all that, I’m going to make a request. On June 6th, the 77th Anniversary of D-Day, I will be participating in the Boston Frogman Swim. The swim is a fund-raiser to support the Navy SEAL Foundation. The Foundation does a ton of work to support both Active and Retired Navy SEALs and, more importantly, their families. 94% of all donations go to the mission. There is VERY LITTLE overhead. My goal is to raise $2,000! Any and all support is greatly appreciated! I’m anticipating the 3+ mile ocean swim, in a balmy 62 degree water… It’s going to be great! You can donate at the link below the picture. Thanks!!

https://charity.gofundme.com/o/en/campaign/bostonfrogmanswim2021/jerryharan

Seasonal Trading

There’s a ton of data available that shows, ON AVERAGE, the stock market statistically out-performs from October thru April and under-performs May thru September. The chart below shows the monthly average returns from 1964 thru 2015. At first glance, it appears that the “Sell in May and Go Away” trading strategy would be an easy way to beat the market. Unfortunately, when we look at individual years, the strategy is not always optimal… We’ll look at several examples from the past 10 years where the strategy worked and years where it did not.

The next chart shows the average daily returns for the S&P500 (C fund) from 1990 – 2017. Again, this is a chart of the AVERAGE over those years. The black line is the S&P500. The red line is the Volatility Index (VIX). The VIX was created at the Chicago Board of Exchange (CBOE). It is derived from short term, forward looking expectations of price variation of the S&P500 options. The VIX is a gauge of Fear in the market. When fear increases, the price of the S&P500 tends to decrease. What’s interesting here, in terms of seasonality, is that the average price increases from January thru mid-June. It then goes roughly sideways thru mid-October, before a strong annual finish. From this chart, it appears that investors would do better to remain invested in the market until July. Perhaps Summer Vacations have shortened over the years…

Individual Year Examples

Below we show 5 individual years of the S&P500 (C fund). Sometimes Seasonal Trading works and sometimes it doesn’t. In the end, understanding Seasonal Trends and combining that understanding with Technical Analysis tools, provides the best results! We go into greater detail on All Charts, for the last 10 Years, in the Weekly Update Show this weekend. You don’t want to miss it!

2011 is a classic example of a successful seasonal trade! May was the high for the year and the end of September was the low for the year. Investors who sold in May and came back after Labor Day avoided big summer losses and caught virtually all of the gains in the market that year!

2012 did not work well for Seasonal Traders. Investors who sold in May did avoid a big drop, but also missed a recovery to new highs by September. If investors got back into the market after Labor Day, they would have absorbed big losses thru mid-November.

Seasonal trading did not go well in 2013. The market remained in a well defined channel throughout the year. An investor who got out of the stock funds in early May and back into stocks in late September missed a decent gain.

2014 was another rough year for Seasonal Trading. Price exploded higher after consolidating from early March thru mid-May. Price hit new highs all the way thru mid-September before rolling over. Seasonal traders would have absorbed the biggest loss of the year by getting back into the stock funds right as the market was tanking after Labor Day.

2015 was almost a repeat of 2011. Seasonal Traders did very well, avoiding summer losses and maximizing gains in 2015.

Bottom Line of Seasonal Trading

Seasonal Trading is a time tested and valuable strategy ON AVERAGE. From my perspective, the best way to use Seasonality is as a bias. For example, if we are coming into the Summer months, I would focus very closely on the technical indicators and price movement. I would err on the Bearish side. It really depends on the pattern and the technical set-up. Coming into the Fall, I would err on the Bullish side, looking for the beginning of a new up-trend.

The Daily TSP Charts

The C fund is sitting on its 10DMA with a 4.5% decline down to its 50DMA and indicators turning negative. With Seasonality as a negative bias right now, I would not give the C fund too much wiggle room here. If I were in the C fund, I would sell on a close below the 10DMA.

2 possibilities exist for the S fund at this point. We have seen a nice consolidation since mid-February and price is currently bumping up against the prior high. If support continues at the 10 or 50DMA lines, we will likely see the S fund explode higher. The other possibility is that a serious double top pattern is forming. A close below the 50DMA would almost definitely generate a sell on the S fund.

The I fund is the only TSP fund that closed below its 10DMA this week. With such a short move down to its 50DMA, I would look for support at that level. A close below the 50MDA would be a big red flag. We haven’t seen a significant close below the 50DMA since the breakout last November…

The F fund is very tricky at this point. If support holds above the 50DMA line then we are likely in a new rally. If support does not hold at the 50MDA then we will likely see the 5th leg lower. We need this pattern to play out a little longer. IF the stock funds do roll over, the F fund MIGHT be a better option this summer than the G fund…

Bottom Line:

We are absolutely entering into a Seasonally difficult time for stocks ON AVERAGE. With this as a bias and looking at the technical set-up of the TSP funds, I am inclined to reallocate out of the stock funds on any continued weakness. Next week could be extremely important! The first red flag would be a C fund close below its 10DMA. The trigger for me would be an S fund close below its 50DMA.

Have a great weekend and PLEASE support my swim for the Navy SEAL Foundation!

Jerry