Sell in May and go away. Traditional investors often buy financial assets after the stock markets fall in October. So people buy in November and hold positions until the end of the first quarter (end of March).
What many ordinary markets participants do not understand is that the sell off does not happen in one day or week. This is call distribution. It is gradual, consistent and hidden until the cracks begin to appear under the feet of the late buyers.
Though the stock markets continue to
rise in April due to the first quarter earnings news, the distribution that begins
at the end of March is still growing. See it as subdivided into multiple waves of bearish activities.
Apart from the traditional investors that are mostly fundamental traders, there is another group of market participants who
combines technical and fundamental analysis. Usually, they are multi-talented financial market players who usually whip fundamental or technical traders who are
wandering in the markets' field. Call them smart traders.
Those smart traders often take positions around mid February. Though they are also mid to long term investors, they harvest their first profit around mid May.
Note that no financial market player should ignore their firing power because many of them are hedge funds.
Indeed, the combined selling force of both traditional investors and smart traders often creates the month of May sell off.
While the traditional investors are selling
and going away, smart investors with a long term approach can still initiate new positions in conjunction with the market cycles or Elliott wave patterns.
The month of May sell off that falls into the last segment of the second or fourth Elliott waves can offer excellent bullish opportunities to a smart trader or investor. After all, one wants to understand what is happening and how to profit from it.
Sometimes, the month of May sell off is insignificant if the broader market (SP-500) is in a bullish third Elliott wave. Note that according to the Elliott wave principle, the wave cycle is formed of a trending phase and correction.
A bullish wave cycle has three bullish mini trends (1st, 3rd and 5th waves). One will agree that the sell off in May that coincides with a mini bullish trend will not be as deep as those that fall into the 2nd or 4th waves and corrective phase itself.
On the other hand, those bearish months of May that coincide with the corrective phase after the bullish trend are
During a sharp corrective phase after an ending diagonal fifth wave, the month of May bearish wave can be a sharp price fall.
Quite often, there are proponents of sell in May and go away; those are traditional investors. Also, there are those who disagree with that argument of selling in May and go away because there are shallow corrections in May when the SP-500 is in 1st, 3rd or 5th bullish wave (especially in 3rd wave). Finally, if the market is in a downtrend, the month of
May will be more bearish than normal
unless it falls into the 2nd or 4th wave
(that are rallies).
Is Sell In May And Go Away A Self Fulfilled
Apart from the activities of both traditional investors and smart traders, other market participants believe that the stock markets are more likely to fall in may than rise.
Memories of past bearish months of May and bearish expectations can lead to a self fulfilled prophecy.
The month of May is usually bearish and this is mainly due to the activities of both the traditional and smart investors.
Apart from those common factors, one should not ignore the financial markets cycles and their mini trends. Obviously, the stock markets can fall sharply or
moderately in May due to the various mini trends that form the markets cycle.
Though, the markets are more likely to fall in May, they do rise sometimes. Never say that the markets will never rise in May.
As I always, I enjoy writing this article and I hope that it has been useful to you. Feel free to share it on the social media.
Thank you for reading.