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Stocks- Sell in May and Go Away?

Stock-Markets / Global Stock Markets May 03, 2008 - 10:46 PM GMT

By: Nadeem_Walayat

Stock-Markets Best Financial Markets Analysis ArticleThis 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.

For the rest of this article please subsribe to our Free Weekly News Letter

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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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