For a detailed discussion of this period and the subsequent bull-market recovery, see our new bookFrom Bear to Bull with ETFs. The eBook (ten bucks) is now available onAmazon.com. Paperback by month end and other channels of distribution like iBook and Nook are coming. Please note that profits from this book will be donated to the Global Interdependence Center, www.interdependence.org.

History shows that ‘Sell in May and go away’ has applied when the Federal Reserve was in a tightening mode during the six-month span from May to November. If the Fed was actively raising interest rates, withdrawing or constricting credit, imposing additional reserve requirements, or taking an action that was of a tightening mode, stock markets were usually punished in that six-month period.

When we did the study we examined what the Fed did, not what it said. We used actual changes in the Federal Funds rate to determine whether the Fed was tightening, easing, or neutral. Once the Fed took the interest rate to zero at the end of 2008, the historical data series lost its power for forecast purposes, since the Fed cannot take the rate below zero. However, we believe the concept is valid even if the present measurement problem exists.