Sell in May and go away?
The adage sell in May and go away is one of the most famous in Wall Street. In the years, when May arrives I always remember this saying, and the idea I had was that in fact there was an increasing in the turbulence this month. Not a very objective idea, and probably conditioned by the saying, as every month can have the same turbulence.
This led me to do some research to try to understand whether or not there is some truth in the saying. Taking as reference the SP500, I found that in the last two years May represented a reversal in the upward trend (arrows in the picture are not trendlines, just point to the mainstream).
Curious but ... would just be a coincidence? I decided to deepen my "research" and expand it to the last 20 years. As you can see in the picture, it doesn’t seem to be a direct relationship between the month and a trend reversal. Sometimes there is some turbulence, but we can’t say that May, specifically, is associated to the trend reversals.
Fortunately there are those who engage in studying these phenomena accurately, and a study of Plexus Assett Management (SP500, 1950-2011) concluded that in fact there is a statistically significant relationship between the months of the year and gains in the stock market, and the first 4 months of the year and the last two represent percentage gains 4 (!) times higher than the remaining six months of the year!
There seems to be some truth in this proverb, the statistics prove it. But, what will happen in 2012? Well, the start wasn’t famous, with a Lower-High after an uptrend. Nevertheless, more important than any superstition or dictation is our ability to adapt to market changes. In any case, caution and chicken broth does not hurt anyone
Edited by surfingthetrend - 5/13/12 at 1:34pm
Sell in may and lose your pay! I don't see the market going more then 20-30 points lower then it currently is before going back up to test the latter part of the range around 1400.
I'll refer back to this post I did in March:
In 2011 when we got nudged up against this resistance, we chopped in a 100 point range for over half of the year.
The channel is moving higher, as is the resistance, so we find ourselves up against the same resistance 50 points higher then last year.
Will that make use have a pullback in the tune of 100 points?
Will we at least range in a wide level of chop for a few months?
Or will budge through, make it support and flourish into 2007's range of all time highs?
You can see that green trend line in this chart i posted previously that dates back to 1992.