Sell in May and go away 2012

“Sell in May and go away” has proven to be true again for 2012. As pointed out by David Silver, over the past 22 years, 15 of them are strong Mays. Only these two years 2010 and 2011, the Sell in May and go away seems to be correct. The below summary chart is taken from seekingalpha.com for reference.

May Market Performance (Source-http://seekingalpha.com)

The Dow Jones recent high of 13338 was actually on May 1 2012. It closed April at 13213 and at the end of May it closed off at 12393. The Dow Jones lost 820 points for 2012 May, that was 6% dropped in May. Yesterday was the beginning of June, and it continued to plunged 2.22%.

The Halloween Indicator is a variant of “Sell in May and go away”. “It is the belief that the period from November to April inclusively has significatnly stronger growth on average than the other months.” (source – Wikipedia) So the strategy to take is that before November you should start to buy some stocks. Of course, you can use Technical Indicators to judge your best entry points in the market instead of following this stock market edge blindly. After that you keep for a few months and before May, you find a chance to take your profit.

If we were to follow this, we would have made quite a lot of profit for the past half a year. Crisis are sometimes opportunities. For long term investors, the recent sell off may be a good chance to accumulate some stocks. We may see more sell off in June due to possibility of Grexit.

But the important thing to learn is that every time in crisis, you should get your shopping list ready. Check the stocks that are deeply undervalues and will be able to survive though the crisis. The most important thing is that you must have cash ready! If you have bought a lot of stocks in April this year in the hopes that it may go much higher although since the beginning of 2012, the stock market has rallied so much, you won’t have much money left when there are some good bargain buys. This is human psychology. When everyone is greedy, you are greedy as well. When everyone is fearful, you are more fearful. So you buy at high and sell at low. You can only contribute money to the rest of stock market players.

So let’s get your cash and shopping list ready. “When everyone is greedy, you should be fearful! When everyone is fearful, you should be greedy”.