By John Derrick Hughes
Sell in May and go away is a long held stock market theory. The belief is that markets rise through the winter, but as spring arrives traders begin to start heading for their cottages for the summer, and the golf courses, action dries up, and it's time to sell in May and go away until the fall, when everyone returns and markets start to rise again. Is there any truth to this saying? The definitive answer is: Maybe.
Looking over the last few years on the S&P 500 index we see that:
* April 16, 2004, peak at 1,135, so selling in May worked
* April 15, 2005, was a bottom at 1,143, and the market rallied for the next few months, so selling in May was a bad idea
* May 5, 2006, peak at 1,326, so selling in May worked
* Feb 23, 2007 peak at 1,451, then a drop, then a recovery in to July, before the next drop, so selling in May was a bad idea
* May 16, 2008, peak at 1,425, the high for the year, so selling in May worked perfectly
* May 8, 2009, peak at 929, then consolidation down to 879 on July 10, and then upwards from then until now, so selling in May was a bad idea
So, what can we conclude from this statistical summary? Sell in May and go away works in some years, and not others.
Brilliant.
Of course, you could argue there is a pattern here:
* 2004 - sell
* 2005 - don't sell
* 2006 - sell
* 2007 - don't sell
* 2008 - sell
* 2009 - don't sell
* 2010 - sell???
On this basis, we should be selling this May. Or not.
Another argument for selling in May has to do with Fibonacci retracement levels. The concept is relatively simple: patterns tend to repeat themselves. A trend, whether it be a market, or a stock, will go from 0 to 100, and then pull back to common Fibonacci levels.
The S&P 500 peaked at around 1,561 in October, 2007, and then dropped to around 683 in March of 2009. A bounce back by 61.8%, which is a key Fibonacci level, would bring the market back to somewhere in the range of 1,225 to 1,230, depending on the exact data points you use.
On April 15, 2010 the S&P 500 peaked at around 1,214, and then fell. In other words the market got close to the key level, but didn't quite make it there.
What does this mean?
Perhaps nothing. Or perhaps it means that the 1,225 level is in fact a key resistance level, and we may be close to, or already at, a top. That would indicate that sell in May and go away may very well work this year.
The unemployment rate remains high, many sectors of the economy remain weak, so a pullback in the markets would not be surprising. It therefore appears that in 2010 a "Sell in May and Go Away" strategy may prove to be the correct way to play this market.
http://www.buy-high-sell-higher.com
Looking over the last few years on the S&P 500 index we see that:
* April 16, 2004, peak at 1,135, so selling in May worked
* April 15, 2005, was a bottom at 1,143, and the market rallied for the next few months, so selling in May was a bad idea
* May 5, 2006, peak at 1,326, so selling in May worked
* Feb 23, 2007 peak at 1,451, then a drop, then a recovery in to July, before the next drop, so selling in May was a bad idea
* May 16, 2008, peak at 1,425, the high for the year, so selling in May worked perfectly
* May 8, 2009, peak at 929, then consolidation down to 879 on July 10, and then upwards from then until now, so selling in May was a bad idea
So, what can we conclude from this statistical summary? Sell in May and go away works in some years, and not others.
Brilliant.
Of course, you could argue there is a pattern here:
* 2004 - sell
* 2005 - don't sell
* 2006 - sell
* 2007 - don't sell
* 2008 - sell
* 2009 - don't sell
* 2010 - sell???
On this basis, we should be selling this May. Or not.
Another argument for selling in May has to do with Fibonacci retracement levels. The concept is relatively simple: patterns tend to repeat themselves. A trend, whether it be a market, or a stock, will go from 0 to 100, and then pull back to common Fibonacci levels.
The S&P 500 peaked at around 1,561 in October, 2007, and then dropped to around 683 in March of 2009. A bounce back by 61.8%, which is a key Fibonacci level, would bring the market back to somewhere in the range of 1,225 to 1,230, depending on the exact data points you use.
On April 15, 2010 the S&P 500 peaked at around 1,214, and then fell. In other words the market got close to the key level, but didn't quite make it there.
What does this mean?
Perhaps nothing. Or perhaps it means that the 1,225 level is in fact a key resistance level, and we may be close to, or already at, a top. That would indicate that sell in May and go away may very well work this year.
The unemployment rate remains high, many sectors of the economy remain weak, so a pullback in the markets would not be surprising. It therefore appears that in 2010 a "Sell in May and Go Away" strategy may prove to be the correct way to play this market.
http://www.buy-high-sell-higher.com
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