Sell in May and go away is an investment strategy for stocks based on a theory (sometimes known as the Halloween indicator).
The Sell in May strategy highlights a phenomenon that from the period from November to April stock appreciate the most on average compared to other months
Darren Winters explains that the phrase “sell in May and go away” is thought to originate from an old English saying, “Sell in May and go away, and come on back on St. Leger’s Day.” This phrase refers to a custom of aristocrats, merchants, and bankers who would leave the city of London and escape to the country during the hot summer months.
American traders and investors also tend to spend more time on vacation between Memorial Day and Labor Day have adopted the phrase as an investing adage.
“Sell in May and go away,” strategy has held true on average with a mixed performance
The chart here shows stock producing the lion’s share of its historical returns between the “winter” months with far fewer returns during the” summer months” (northern hemisphere).
So why not sell this May?
Not so fast, says Darren Winters. Apparently, new research finds that this pattern’s historical track record can be traced to only a few years, specifically, the third year of the presidential four-year term. During the other three years of the four-year term, in contrast, the sell in May pattern is statistically non-existent. If this new research finding holds true then there’s nothing to bet on this year.
So this new research doesn’t dispute the sell in May strategy it goes further to support the approach by suggesting a pattern exclusively to the third year of the four-year presidential term. The study was conducted by Kam Fong Chan, a senior lecturer in finance at the University of Queensland in Australia, and Terry Marsh, an emeritus finance professor at the University of California, Berkeley, and CEO of Quantal International, a risk-management firm for institutional investors.
Nevertheless, sell in May in 2019 could still also be smart
Even some of the ardent bulls are warning of a minor correction of 5% before stocks march higher.
“The tactical backdrop continues to suggest a minor correction in the near term, with any drawdown limited to 5%”, said Tony Dwyer, equity strategist at Canaccord Genuity. Moreover, the fundamentals are waving a red flag, copper and bond yields suggest that growth for the foreseeable future has ended.