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"Sell in May and Go Away"
Posted On Thursday, April 29, 2010 at at 4:19 PM by Finance Fanatic
All of Tuesday's big losses were pretty much given back on Wednesday and Thursday as the Dow closed up another 122 points today. Like I said on Tuesday, you need to be careful in getting false signals of market momentum on reactive selling days. To many, it looked like indeed it was a start to correction in the market. Reactive selling days have tendency to quickly give back the profits they took. So for now, any downward momentum that was created on Tuesday is completely non-existent at this point.
Now this isn't to say that we won't be heading down soon. I'm just saying from a technical standpoint, there is no significant momentum forming. However, one thing on people's mind as we begin to close out April is the good 'ole saying, "Sell in May and go away." Historically, May has been a strong selling month and it makes sense when you consider why. First off, it usually follows earnings, which is never the best time to trade. If we go through a bad earnings period, people are beat down with low sentiment and have little confidence to buy. If we have a good season of earnings, many stocks get overbought due to extreme optimism, which causes for a bit of a hangover effect to follow. We also head into the summer months, which for most businesses, tend to have slower sales (except homes).
However, this May is not your usual May. The market has already shown its ability to overlook resisting trends and push forward and the government continues to prove that it will do all that it can to continue to lift up the economy. Surely, the unemployment report will set the tone for the month of May. Many are feeling that this next month is the month. Job growth will look positive, GDP growth will be high, and earnings will stay strong. If data shows otherwise, I expect to see a lot of unhappy traders.
For Friday, don't be surprised to see some selling. Many people went long yesterday and today and they have received large enough gains to not have to risk holding them over the weekend. If we do start out in the green in the morning, I will most likely take some short positions, because I would expect many investors to close out their positions before close. Also, even though it looks Greece is going to be bailed out by the European IMF (which could help markets tomorrow), there still remains uncertainty about foreign economies. Happy Trading.
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