Is It Time To 'Sell In May?' Here's What The Numbers Say...

Jimmy Butts's picture

Friday, May 19, 2017 - 12:00am

by Jimmy Butts

One year later and the story has completely changed...

As we enter the traditional seasonally weak six-month period of the year, you will no doubt read and hear about the debate over whether the old Wall Street axiom "Sell In May And Go Away" is relevant this year.

Of course, no one can predict what the market will do this summer, but one of the reasons that this old saying is still around is because it does have some validity to it, which I'll touch on in a moment.

Readers of my Maximum Profit premium newsletter know that this time last year, I was quite cautious regarding the market outlook. I cited a decline in corporate earnings, the trouble my system was having finding companies with exceptional cash flow growth and the sideways trading market as reasons for concern.

This was the chart I showed my readers last May:

 
As you can see -- by the shaded green line -- earnings were in a decline and the market wasn't sure what to do. And for the most part we dabbled in and out of a handful stocks, but mainly kept dry powder on hand for when the market decided what its next steps were going to be. 


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It wasn't until the end of last summer that my system began alerting me to multiple "buys," something it hadn't done since early 2015. Clearly it detected something in the market. Several of the holdings that were added to our Maximum Profit portfolios around that time (August - October 2016) have gone on to perform quite well for us so far. (Note: I've withheld the names of these stocks out of fairness to my subscribers.)

Holdings Added During Last Year's "Weak Season"
Company Return
Holding #1 39.5%
Holding #2 45.5%
Holding #3 30.9%
Holding #4 35.4%
Holding #5 38.6%
Holding #6 18.9%
S&P 500 (Return since 8/29/16) 10.6%

 

But that was then. This is now...

As we enter the summer months -- the seasonally weak period -- the market is no longer trading sideways but is in a solid uptrend, and corporate earnings found their bottom and are on the rise.

The Maximum Profit system has kept us fully invested in the market as nearly every portfolio has reached its "quota" of stocks. 

But now we've entered this investing period that's historically weak. As I mentioned above, the phenomena of "Sell In May And Go Away" does have some validity to it...

Going all the way back to 1900, May is the fourth-worst performing month for stocks, with an average return of just 0.26%. The worst performing month: October, with an average return of -0.28%. And June and September finish out the top four worst-performing months, with average returns of 0.14% and 0.08%, respectively. (For those who are curious, the strongest month of the year is January, with an average return of 1.55%.)

So with May, June, September and October as the top four weakest months of the year, you can see where the adage "Sell In May" is derived from. Over the last 20 years, the S&P 500 returned an average of -0.9% between May 1 and October 1, with the market ending in negative territory nine times.
 

So perhaps selling in May and taking a summer vacation isn't such a bad idea after all, so I'll see y'all in October... Of course, I'm kidding, but the data does highlight an intriguing market trend as we head into the summer. 

I don't know what lies ahead on the investment horizon, but I have confidence that my system will be able to signal whether we should remain bullish or rotate out of stocks and into cash. 

That's the beauty of having a proven system in your corner. You don't have to worry about emotions clouding your judgment. By relying on the two indicators of the Maximum Profit system -- one fundamental, and one based on momentum -- my subscribers and I can sit back and simply follow the signals we're given. 

We'll take profits when they're ready to be taken -- not before, and certainly not after. We'll also get out of potentially "bad" trades with minimal losses before they turn even worse (I can't stress enough how critical this is: Studies show that THIS is what tends to hold investors back more than any other factor).

My advice: If history is any guide, we may be in for some doldrums in the market. In the meantime, if you'd like to learn more about the Maximum Profit system and how it can work from you, go here.

Jimmy Butts does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.