Should You Follow This Strange Wall Street Saying?
“Sell in May and go away” is a popular Wall Street adage that usually surfaces around this time of year. To some investors, the phrase is simply slight of hand. It’s simple, it rhymes and there’s no concrete academic evidence that proves it to be nothing but the truth. Therefore, it’s safe to ignore.
However, the “sell in May and go away” mantra didn’t gain popularity for no apparent reason. For reasons unknown, markets tend to perform better November through April — and they tend to fade during the summer months. Notice that I said “tend to perform better.” This is not a concrete rule. It’s merely an observation that tends to be right just enough to carry some meaning amongst market watchers.
See for yourself:
Above is a weekly chart of the NASDAQ in 2010. If you sold your positions in May and bought them back in October, you would have easily outperformed the buy-and-hold crowd. But what about the year before?
Oops… If you had sold your NASDAQ holdings in May 2009, you would have missed out on a furious rally. As you can see, the adage is not set in stone.
All rhyming aside, I do believe these next two and a half weeks will be critical for the market. Earnings season kicks off this week, giving us a decent barometer with which to measure investor sentiment. The numbers themselves don’t tell the story as much as Wall Street’s reaction. If the market is able to shrug off mediocre numbers and find higher ground, we could very well see a test of February’s highs.
However, if the Street is unable to rally on strong earnings, it could be a hint that a more substantial correction is imminent. If the market fails to show us a positive reaction as earnings season unfolds, it just might be time to sell in May…
Sincerely,
Greg Guenthner
Penny Sleuth
April 13, 2011
Should You Follow This Strange Wall Street Saying? was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.
This story was originally featured on Penny Sleuth.
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