July 3rd, 2006

Summer Rally? Not in a Long Time; Not this Summer.

It’s been quite awhile, again, since my last post for the reason that I’ve been wrestling with my performance since my bearish call since early May. Has my assessment of the situation (“sell-in-May”, Presidential mid-term election cycle, market p/e and cyclicle bear market) been wrong, has it been my execution or, simply, is it still too early to tell.

According to the statistical analysis in my May 15 posting, “Major Stock Market Correction in the Offing?”, the market has increased in 69.2% in May and 61.5% in June during 1980-2005. So this year’s 3% decline in May and essentially flat June compares favorably …. if you’re following a bearish strategy. The worst months have been July, August and September:

Month Up Maximum Ave Up’s Down Minimum Ave Down’s
5 69.2% 9.20% 3.28% 30.8% -5.94% -2.34%
6 61.5% 5.44% 2.57% 38.5% -7.25% -2.37%
7 38.5% 8.84% 4.79% 61.5% -7.90% -2.40%
8 57.7% 11.60% 3.72% 42.3% -14.58% -4.69%
9 42.3% 6.24% 2.89% 57.7% -11.00% -4.01%
10 65.4% 11.04% 4.09% 34.6% -21.76% -3.63%

So the jury may still be out. The next few months may be very bumpy.

So I’m not going to panic … yet. I’m not going to listen to the perennial bulls on CNBC. I may have been premature. I’m going to stick my strategy, or should I say tweak my strategy, over the next several months.

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