Screening for Seasonality

A lot of folks see a long term trend toward the summer being a generally awful time to have money in the stock market. In his book Winning on Wall Street, Martin Zweig discusses the power of trading during certain times of the year. Charles Kirk posted an interesting link that discusses the seasonal trends here and here.

Since the Zweig screen is my favorite, I went back to 1998 to see how the screen did during the four summer months and compared it to how it did the final four months of each year. The results weren't as dramatic as I expected but they were interesting. The average return each year during the summer was 3.83%. The average return each year during the fall and winter months was 17.51%.

That's quite a wide margin, but the maxim "Sell in May and Go Away" doesn't seem to apply when you are making nearly 4% each summer. That summer average of 4% includes a nearly 30% loss the summer of 1998, which really skewed the numbers.

So, I haven't been convinced to walk away from the market from now until September. But it is never a bad idea to be more defensive during times of the year when the market is on the weak side.