Calendar Market Timing systems

Calendar Market Timing systems are interesting because they don't look at any fundamental or technical information from the stock market. They are purely based on the calendar (except for some optimized models). As we'll discover, they can perform very well.

Best 6 months: "Sell in May and Go Away"

Many studies have shown that stock markets, worldwide, generally make a large portion of their gains between November and April.

The basic strategy is to buy around the 1st of November and to sell around the 31st of April.

Please note the emphasis on "around". An "Optimized" version that sells on the 4th of May exists. Well, you know, maybe...Data Mining. Best to keep it simple !


A couple of reasons have been given for the outperformance of markets from November to April:
  • less trading activities during summer holidays,
  • slower business (less sales) during summer,
  • people invest extra money (Bonuses) at the end/beginning of the year,
  • contributions to retirement accounts are encouraged at the end of the year or before April (depending on your country).

Investing only from November to April allows to capture 75%-80% of the Market Returns but at a much lower risk. Risk is reduced, not just because you are in the market half of the time, but because you are in the market during less volatile periods (see Market Timing Performance summary).

The system has been enhanced with Technical Analysis using the MACD: check Momentum Stock Picking and Market Timing.

Presidential Cycle Go back to Top

Markets tend to perform much better during the 3rd and 4th year of the US Presidential Election cycle rather than the 1st and 2nd. The performance difference is staggering and cannot be ignored.

Year Average Return Standard Deviation Positive Year Min Return Max Return
1 3.8% 18.6% 46% -18% 32.3%
2 5.9% 22.4% 50% -28.1% 47.3%
3 18.7% 8.7% 100% 3.9% 35.2%
4 8.7% 10.3% 86% -11.8% 28.9%





The main reason given for the outperformance in years 3 and 4 is that the current party would announce positive measures ahead of the election (taking place at the end of year 4). Cut in Tax on Dividends was announced in 2003: yes, a year 3 of the presidential cycle.

Note that average returns are positive for the 1st and 2nd year, which means that investing only during the 3rd and 4th year would provide a lower rate of return than simply Buy And Hold.

Just investing in year 3 and 4 would give you an Average Gain of 7% (standard Deviation 10.1%) compared to 9.4% (standard deviation 16.6%) for Buy And Hold. Risk is greatly reduced because volatility is much lower in year 3 and 4. The maximum loss is -11.8% compared to -28.1% for Buy And Hold ! All returns exclude dividends. (see also Market Timing Performance summary).

Now, you can always invest in Bonds during the 1st and 2nd year of the cycle: the low rate of returns for stocks during these 2 years suggests that Bonds could provide similar or better performances but with lower risk. Notice how the volatility is just crazy in year 1 and 2.

Combined Best 6 Months and Presidential Cycle Go back to Top

What if we combine the 2 calendar strategies?

  • Year 1 and 2 of the Presidential Cycle: invest in the "Best 6 months"
  • year 3 and 4 of the Presidential Cycle: Buy and Hold


    Calendar Market Timing - combined best 6 months and presidential cycle

    This strategy captures most of the Stock Market gains but with much reduced risks. It earns 9.1% (standard deviation 12.1%) versus Buy and Hold returns of 9.4% (standard deviation 16.6%). It beats (matches in year 3 and 4) Buy And Hold 3 out of every 4 years. In addition, it is a very simple system to put in place.

    Using Asset Allocation, if you want your portfolio's volatility to drop from 16.6% to 12.1%, you'll need about 40% in Bonds. Doing this would drop your expected returns to less than 8%. This market timing system therefore beats Asset Allocation.


    The variation 2 of the combined model has some merit as well. It invests in Stocks from November 1st of the year 2 till April 31st of the year 1 of the next election cycle for a total investing duration of 2 and a half years. The main benefit of this timing system is that it is very Tax friendly: you'll never pay short term capital gain tax. It earns 8.4% (standard deviation 10.4%). All returns exclude dividends.


    See also:
    Moving Averages Market Timing
    Monetary Market Timing
    Market Timing Performances summary


    Finally, check Stock Picking & Market Timing to see how you can improve your investment returns by combining Stock Picking with Calendar Market Timing.
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