"Sell in May and Go Away, Stay Away Till St Leger Day". The saying empirical evidence. Apparently if you BUY in Oct and SELL in May, 7 months in a year, over the last 100 years for S&P500, you will achieve 7.5% p.a. Between June and Oct, the return would have been a paltry -0.3% pa.
I believe most markets have formed a double bottom and are poised for a rebound. However, valuations are not as cheap as they were in 2013 so I would still stop at 60% equities, 40% bonds. The upside for US is less than 5%, for Europe less than 10%, for Asia and EM less than 15%. Only China has a strong upside of over 20%.
There is a standard deviation around my expected return. I believe the margin of error is somewhere + - 5%. So therefore the S&P 500 could potentially do nothing or rise to 10% in this bounce. Europe could rise to 15% or by only 5%.
Frankly, Asia and EM have fallen by over 20% so far, so a rebound of 15% will still not bring it back to the highs in May. Similar for Europe and US too. This rebound may not bring them above May's high.
Does this mean that we will see a double top by early 2016 and then a fierce drop again, confirming a bear trend? Time will tell. Valuations tel us how much stocks are likely to rise or fall. Technicals tell us when.
