Stock Market Analysis

Sunday, May 01, 2011

Sell in May and Go Away?

Sell In May And Go Away?

Welcome to the first day of May! Well, the old adage rings by our ears once again... Should we sell in May and go away? We saw many investors actually doing that over the past few trading days through the dropping bond yields as investors reallocate back into the safety of bonds, taking profit on the gains over the past few months. Traders seem to be the ones taking over the market on the recent successful technical rebound, taking the market ever higher on investors' exit.

What does sell in May and go away mean? Well, it is an old stock market wisdom that says it is wiser to take your profit in May and stay away for the rest of the year until year end. Are there any facts supporting this? Well research has shown that the period between May to October of most years underperform the period of January to April in most countries. As such, there is an incentive for big institutional investors to exit the game by May especially if they have made a good profit during the first four months like they have so far in 2011.

Does that mean that there is no money to be made each year in the period of May to October?

Of course there is money to be made. In fact, there will always be plenty of day trading and swing trading opportunities under any market conditions. This seems to affect the stock buy and hold investors who hold their stocks whole year long the most. As short term options traders, there will always be explosive opprtunities.

So, it is the first week of the month again, ISM index and Jobs report week (see Stock Market Calendar). Even though the US market is clearly going through another short term period of economic data volatility, traders don't seem to be concerned at all. In fact, all leading indicators seem to suggest a poorer ISM index this time round which will definitely have an impact on the market. As such, I would not be surprised to see a pullback week this week from this short term overextended market. Immediate support is around the 12,400 level. It also seems like a lot of investors would be singing to the tune of "Sell in May and Go Away" this year.
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