Like clockwork, the investing adage “sell in May and go away” has re-emerged. Most investing clichés don’t hold water, but this one does.

Strategists at S&P Capital IQ found an unusual set of calendar-based returns: “On a seasonal basis, the six-month stretch from May to October is historically a weak period for the S&P500 Index, dating back to 1990. On average, the broader market has risen just 1.3%, compared to a 7.0% gain from November to April.”

#-ad_banner-#Why would such a trading pattern persist? Two reasons are usually cited. 

First, active investors, professional traders and hedge fund managers start to take three-day weekends, and they devote less time looking for stocks to buy and more time looking for existing positions to cull. 

Second, the European sales offices of U.S. firms start to detect a hesitance when it comes to purchasing decisions. Few European customers want to ink deals just as they are starting to prepare for their extended summer holidays.

Though the market has been in a solid uptrend for the past five years, pockets of weakness have emerged in the spring and summer months.

To inject a further note of caution, investors should proceed especially cautiously with tech stocks. Once-loved growth stocks such as Twitter (NYSE: TWTR) and 3D Systems (NYSE: DDD) are slumping badly as investors begin to avoid “story stocks” and focus on tech firms with tangible profit growth, or at least reasonable valuations in the context of that growth. 

Yet it’s what many tech companies are saying that is starting to prove worrisome. Here’s a quick sample:

• Commvault Systems (Nasdaq: CVLT) noted “significantly lower close rates on large enterprise deals in the Americas,” which was surprising “given our large enterprise deal form and good outlook for the quarter as of our (third-quarter) 2014 earnings call.”

• Imperva (Nasdaq: IMPV) said “our first-quarter results were primarily impacted by extended sales cycles on deals over $100,000, which led to delays in receiving anticipated orders from customers, particularly in the U.S.”

• Infoblox (Nasdaq: BLOX) noted that “We also closed fewer $1 million plus transactions than we typically do. In the second quarter, we closed three seven-figure deals versus the usual five or six per quarter.”

The key theme for these and other tech stocks is a growing caution among customers to agree to large deals. And much of the weakness is attributable to the U.S.: Europe hasn’t even entered into its seasonally slowest buying cycle of the year. 

To be sure, a wide range of once-hot growth stocks have already lost a considerable amount of value in the face of sales execution pressures. Of further concern, many young tech companies are still far away from profitability, and the prospect of slowing sales growth makes that even harder. Here’s a quick look at recent big losers in tech that are expected to remain unprofitable in 2015:

There are many tech stocks that are expected to show profits by next year, but even after a sharp drop, they still are hard to value in the context of their price-to-earnings (P/E) ratios.

Another key concern for tech investors: the quality of financial results. Shares of 3D Systems have lost more than half of their value since January, in part due to concerns about low-quality balance sheet metrics I discussed last fall.

Meanwhile, rival Stratasys (Nasdaq: SSYS) has fallen a more reasonable 30% from its 52-week high, largely because the company’s organic growth strategy and cleaner financials have been more reassuring to investors. 

To be sure, tangible concerns about growth need to be seen in the context of valuation and industry positioning. I recently noted that both Infoblox and Imperva, each of which has fallen more than 40% in the past three months, remain well-positioned for long-term growth despite the recent sales executions. So you can’t simply shun all of these losers — you should instead tread carefully and identify catalysts for a rebound. 

I’m even warming up to Twitter, which once looked ridiculously overvalued, but now seems more rationally valued after a 50% pullback. It will be interesting to see if buyers embrace this stock after the looming share price lockup period expires.

Twitter is still trying to prove its ability to profit from its massive user base. That was a key concern for Facebook (Nasdaq: FB), before that stock took off like a rocket. My colleague Marshall Hargrave makes a solid case of why Twitter is now a lot more interesting at its current valuation.

At this point, there are two key issues to ponder regarding tech stocks. First, has the flurry of IPO activity over the past few years simply created too many well-funded players in specific niches? 

For example, both Splunk (Nasdaq: SPLK) and Tableau Software (Nasdaq: DATA) are solid players in the field of data analytics, but the recent 25% pullback in each stock may be reflecting crowded operating environments. As a result, it’s crucial that you fully understand the competitive environment before buying any tech stock. 

Second, the sharp pullbacks in many tech stocks may be opening the door for deal-making. Big companies such as Microsoft (Nasdaq: MSFT), SAP (NYSE: SAP) and Oracle (Nasdaq: ORCL) must be salivating over the chance to acquire some of these broken tech stocks — especially those that have built impressive product platforms. The slowly firming global economy sets a perfect backdrop for a rising tide of mergers & acquisitions (M&A), and the tech sector should prove to be especially fertile. 

Risks to Consider: As an upside risk, investors may pivot back to the euphoric mood they had last fall, snapping up shares of these young tech companies that are still capable of solid long-term growth.

Action to Take –> There is a clear rotation underway. Investors began to ditch the large dot-coms back in February, then they fled biotech stocks in March, and now they are fleeing many young tech companies. It’s not clear yet that there is a floor in place yet for any of these groups, though it’s quite clear that you can now own them at much better prices. Still, the sobering commentary about deal slippage likely sets the stage for summer doldrums for tech stocks in general. That’s why you need to heavily research any tech stocks you are contemplating buying. The risks may outweigh the rewards until it’s clear that sentiment has rebounded.

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