Sell in May and go away has been the right advice for stock-market investors in 2012, as of 23 May. Equities have had an absolutely miserable time of it. The FTSE All-Share is down 6 per cent, the Dow Jones 5.4 per cent, and Germany's DAX 4.7 per cent. The best known rule of seasonal investing worked especially well for the Dow, which made its bull market highs to date on 1 May and has fallen almost ever since.
Seasonal trends offer little comfort as we approach June. The sixth month has historically been the worst of the lot for UK equities. The All-Share index has gone up in less than half of all Junes going back to 1935, with an average loss of 0.85 per cent. (I use the FT 30 index to measure performance prior to the All-Share's creation in 1962.) The FTSE is one of my least favourite indices right now, given its significant weighting in crisis-exposed banks, and a hideous-looking chart.
Mind you, things aren't much prettier in June for the US stock market, whose various indices are among my favourites right now. Like the FTSE, the Dow has tended to rise less than half the time in June, going all the way back to the start of the 20th century, with an average gain of 0.2 per cent. If the markets do manage to rally at all next month, I would seek to play that move by buying into the US markets. I am looking for a decent bounce in June, if only because stocks have been sold off excessively.
Dow down in recent Junes
I am also currently on the lookout for a significant move higher in gold, which has also become oversold, just like stocks. It has also lately found a floor around an important level at $1520. History suggests that this is not a great time to be seeking a revival, though. June is the yellow metal’s worst month of all, with gains recorded just 39 per cent of the time, and an average loss of 0.4 per cent. So, while I am looking for a major move in gold to above $2000, it may not happen quite yet.
Unlike gold and the stock market, crude oil doesn't exhibit strong seasonal patterns in June. Whether it rises or falls is pretty much a coin-flip, while its average gain of 0.6 per cent is modest. This is in contrast to its traditional strength in April, where it has gone up two-thirds of the time, and to its customary weakness in November, where it has barely gone up four years in ten. The black stuff’s price entered a strong downtrend in May and this may have further to go, looking at the charts.
Seasonality also offers little comfort for copper, which has also been in a downtrend of late. At one point in May, it had shed 11 per cent of its value at the start of the month. It has risen slightly less than half the time in June over the years, and its average change is close to zero. There are few technical clues that its decline has yet run its course, either. An eventual drop to 337¢ and perhaps 322¢ could be on the cards in the weeks ahead.
**Dominic will be presenting at the London Investor Seminar on 18 June - book your place today.**
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Dominic Picarda is a Chartered Market Technician and has co-ordinated the IC's trading coverage since 2006. He is a regular speaker at trading and investment events and also holds the Chartered Financial Analyst qualification.