Stocks- Sell in May and Go Away?

By: Nadeem_Walayat

This weeks newsletter looks at the stock markets trend during the summer months and especially in light of the "Sell in May and Go Away" adage. Meaning to sell stocks during May with a view to buying them back again some time during September.

On a purely statistical basis the sell in May rule does not stand up as 60% of the time stocks can be expected to rise between May and the start of September, therefore if such a rule is to work it would need significant refinement.

Presently, the stock market rallies have continued into the start of May on the back of better than expected earnings reports despite rising inflation as evidenced by surging energy and food prices and slowing economies.

A key element required for the rule of selling in May to work would be to take into account the prevailing trend going into May, i.e. the best trend to sell from a technical viewpoint would be a rally from March to May within a bear market, which does appear to be matching our current state of play as the stock markets have yet to fully discount a US recession which will impact economies across the globe and thus corporate earnings.

Despite the most recent rally, the last 6 months have been bearish when statistically they were supposed to be the best 6 months of the year, leaving many stock indices lower by between 10% and 25%. This on face value would suggest that stocks should be stronger during the summer months in light of weakness during the previous six months. However analysis of actual performance suggests that a weak November to April is followed by a weak summer.

Thus two negatives for stocks that seem to support "Sell in May and go away" for this year.

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By Nadeem Walayat

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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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