How true is “Sell in May and Go away?”

Posted on Posted in Daily Blog Post

There is an old market adage, "Sell in May and go away." This strategy seems working well in 2011, as Euro Zone crisis and a U.S. debt downgrade caused the markets to drop significantly. But this strategy did not pay off last year.

So, the big question now is “what will be the likely scenario” this year- just less than 2 months away.
Hirsch's historical evidence for the virtues of avoiding the "May" month for both the Dow and the S&P500 date back to 1962. Since 1962, this strategy of selling in May then buying back stocks in September/October would have grown $10,000 invested in 1962 to some $620,000 by today.

Here is my take for this coming ugly May:

  1. After a strong run for the last 2.5 months, I expect smart money and fund managers will lock in gains in April/May or even right now.
  2. Euro zone is still a big “concern”, so it is reasonable to expect that the market will pull back in a big way even with 20% decline at some point in the months ahead.
  3. There is a high risk that the market will have a very big correction in April- May and August-September period if my Gann’s timing cycle analysis is right.
  4. Elliot Wave is displaying 1560-1575 in SP500 as a major resistance. The best I can see now is the final spike up to 1580 before heading down for a short term correction. Leave the last 10% gain to others- do not be greedy. Time to unload!
  5. DOW 13500-13700 is the area to load up Dow again for Long positions – only for Short term trade. Simply because I expect a very bad time for stocks in May and August/September this year. There will be a ‘panic sell’ during that time.
    For long term investors, do not chase the market anymore......it is time to unload some and wait to buy back at low point in May and August this year.

Sell in may and go away

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