The Halloween Indicator
Happy Halloween! Here’s a post in the spirit of the day. We’ve all heard of the Superbowl Indicator and the whole “sell in May and go away” tenet. But, have you ever heard of the Halloween Indicator?
Actually, the Halloween Indicator is actually the resolution of the “Sell in May and Go Away” strategy. It refers to when its time to come back. Because, after all, its no fun to be away from the markets for so long is it?
It can be empirically proven that the time between November 1 to April 30th have provided most of the outsized gains in the broad markets over the last fifty years. For example, the 2005 Stock Trader’s Almanac included a stat which showed that the Dow Jones Industrial Average has gained 10,599.68 points during the aforementioned months in the last 54 years. It has actually lost money in the May thru October periods of those respective years. A similar seasonal pattern exists in the S&P as well.
The Halloween Indicator isn’t just some sort of inside joke passed on by traders. It was actually the subject of a rather lengthy paper written several years ago which found that there is significant evidence of seasonality in the US markets dating back to 1970 and that similar seasonal trends exist in 36 other countries around the world as well. (Read the Paper Here)
There are, however, some people arguments against the Halloween indicator. They were presented quite cogently in a Marketwatch article several years ago, “A Second Look at the Halloween Indicator“.
So, do you believe in the Halloween Indicator? Should we trade on it? Well, the last few years seem to show that the Halloween Indicator might still be in effect. This summer in particular would have been a pretty good time to miss out on. And, given the rate cut today (Halloween), it would seem that we’re set up for a nice little run into the next year. Maybe, Ben Bernanke is a closet believer of the Halloween Indicator. Happy investing! Hopefully, you’ll be collecting more treats than tricks.
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