Sell in May, Go Away?

Good day,

Unlike fundamental analysis which essentially aims to determine the “health” of a company, technical analysis aims to determine the direction of a stock or overall market by looking at trends and trading patterns. 

Many investors have heard the adage “Sell in May and Go Away”. This theory has been debated for as many years as I can remember, but no solid conclusion we can rely on has been arrived at. While in certain years, the months of November through April could be strong. In others, the summer months have proven to propel markets to new highs. Whether there’s validity to seasonal trends or not, seasonality can be a self-fulfilling prophecy in which case investors can take advantage of any softer periods that might exist. 

Selling quality holdings during the summer months is a dangerous game to play especially if companies report strong earnings during those months. If the market runs away from you, you’re stuck trying to determine when to get back in and often end up buying at higher prices than those at which you sold, or you keep waiting for prices to drop but in a rising market, you can be waiting forever.

That said, you could take advantage of any foolish behavior that might exist by taking a contrarian approach. If you’ve been waiting to do some tax loss selling where you hope to re-purchase the same security 30 days or more later to crystallize a capital loss and see declines or sideways trading markets, this might be a good time to do so.  If you’ve been looking for an entry point on particular security you’ve had your eye on, take advantage of any selling pressure by purchasing at lower valuations. 

Remember that investing and speculating are two different things. Choose your own adventure, but at the very least, enjoy the sunshine.



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