Sell in July and Go Away?

Should you sell in May and go away?

Market action thus far:

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The old Wall Street adage would have you believe so, but since 2000 that practice has had very mixed results.  In fact, in five of the past 15 years the market actually rallied aggressively through May and afterwards as well.  Those years were 2003, 2005, 2009, 2013, and 2014.

There were some very clear declines that began in May as well, notably in 2011 and 2012 the market turned down beginning on May 1, almost like clockwork.

However, most of the time the market did not turn down perfectly in the month of May, but instead turns down began sometimes a little before and sometimes a little after the month of May.

Reasonably, the old adage on Wall Street pertains to slower economic activity during the summer months, and also the lack of immediate interest in the stock market from investors who would rather be on vacation than working on Wall Street.  This is typical, but not an absolute. 

Because the turns down were not precise and because sometimes they did not happen at all, I needed to ask myself what might influence the market to turn down in the month of May this year.  My conclusion is that at the time I wrote this the market was much more likely to increase towards a level of defined resistance as that is defined in our longer-term chart patterns than it was to decline because support levels have been tested and they have held thus far.

However, that test of support also gives me an indicator, so if the market tests longer term support again and breaks below longer term support in the month of May I will expect additional declines.  Or, if the market increases to test longer term resistance and then begins to turn down I will expect additional declines as well, but expecting an increase to resistance in May could be asking a lot.

Interestingly, I drew analogies at the beginning of this year to calendar 2000 and 2007, so my first reaction was to look at those years and see how the market turned down during those summer months, if at all, to see if there were still correlations.  What I found was that in both times the market turned down not in May, but in July.  It did experience summer weakness in 2000 and 2007, the turn downs were rather aggressive when they happened too, but they didn't happen in May, they happened in July.

Given what I know about the technical patterns I'm watching right now, the higher levels those suggest, and the probable timetable for a test of my longer term resistance line to become official (if it triggers at all), it is not unreasonable that we see a similar turn down begin closer to July in 2015 as well.

Sell in May and go away is a term we should all respect, but it needs to be taken with a grain of salt.  Not only has sell in May not worked for 5 of the past 15 years, but more often than not when the market has experienced a summer pullback it has not begun in May.  This year, at least at the time this was written, a turn down beginning later in the summer seemed more reasonable, and July is not out of the question.

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