Sell in May? A brief study on SEASONALITY (and stock picks)

٢ مايو ٢٠٢١

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--

• https://www.isabelnet.com/seasonality-sp-500-index-average-monthly-returns/
• https://www.isabelnet.com/sell-in-may-various-sp-500-index-6-month-returns/

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 (SPY, QQQ, DIA, IWM)


VIX



-- 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
  

٣٠ مايو ٢٠٢١

أغلقت الصفقة: تم الوصول للهدف

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 EA, ATVI, and TTWO and did pretty well except for ATVI 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