1/ What is the Halloween Strategy?
2/ How Does it Perform?
3/ Who Else is Seeing This?
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1/ What is the Halloween Strategy?
With Halloween rapidly approaching many traders and investors are caught up in tricks and treats, and few know that there is actually a Halloween strategy. That’s too bad, because it’s a strategy worth paying attention to. Gordon Scott, CMT wrote an article last year all about what it is and why you should use it. Scott tells us the idea is “that stocks perform better from Oct. 31 (Halloween) to May 1 than they do from the beginning of May through the end of October.” The strategy encourages interested investors to buy more in the fall and sell in the spring.
2/ How Does it Perform?
The performance of the strategy is notable. Scott writes, “Results also show that a strategy of selling in May is successful in beating the market more than 80% of the time when employed over a five-year horizon, and more than 90% successful in beating the market when used within a 10-year time frame.” Using the S&P 500 in the graph below we can see the effect in action.
3/ Who Else is Seeing This?
We can’t be certain what causes the Halloween Effect, but the evidence of it is plentiful. And Scott is not the only one to catch on to this hypothesis; just last week Jeffery Hirsch posted his seasonal insights. Hirsch focuses in on the fourth quarter, drawing the same conclusion: fall is the time to buy. Hirsch highlighted in particular the Nasdaq’s Yearend Rally, citing the data below.
Hirsch bases much of his work — including his October forecast — on the legacy left by his father, Yale Hirsch, whose 100th birthday was yesterday. “We lost Yale two years ago at 98, but his legacy lives on. We are reminded of him every day when we track market cycles, patterns, and trends. Back in the 1969 Almanac he first warned us about October volatility and that October is the best time of the year to buy stocks.” Keep an eye on October’s lows this month, perhaps the spirit of Yale Hirsch will inspire the buyers.
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Originally posted 24th October 2023
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