“Sell in May and Go Away” is an old adage of stock market investors. It signifies a sell off that typically occurs in May following the end of fourth & first quarters earning reports (usually the biggest qtr. for earnings). During the reporting period, investors are making decisions based on earning estimates and future outlooks.
If a company is expected to beat estimates, the stock may rise following the report. If the company earnings report is under estimate, it normally sells off.
But the market is also forward looking.
So at the same time, investors know second quarters are slow seasons for earnings. So their decision is, should I take profits, hold, or breakeven.
If they think its a beat on earnings, they hold thru earnings, take the run up, and then take profits and exit.
If they believe it wont beat estimates, they may take some profits prior to earnings, closing most positions, but leaving some open in case of a beat and hedge the open positions with options.
This is why we saw a sharp but narrow decline in stocks around a month ago. Then the run up to the current earnings, and now the exit.
But is the adage of Sell in May and go away a real market influence?
While there may be some traders and investors who perceive it as a reality and make trades and investments based on it. What they are actually doing is recognizing the market cycle. This cycle does not depend on the adage, but may be in some ways influenced by the retail traders who hold that perspective.
Sell in May and Go Away? Markets are Cyclical.
When you understand the cycle and where you are in it, you can begin to recognize & (while not guarantee), predict the markets moves with some amount of confidence.
You protect your trades that cannot be guaranteed, with risk management techniques.
As we watch the current sell off, now may be a good time to plan our next trades and investments. By now you should have a shopping list of investment and trade opportunities that look attractive to you. Since our investments and trades are based off of sound confluences and throughout fundamental and technical analysis, we are confinement in our trades and our positions. We don’t panic. We take action.
If you’ve completed our training course, this is the opportunity to begin setting price alerts and following the system.
If you have not taken our Forex Destiny Trading Complete Training System Course, we highly recommend you do so you can know what your next moves could be.
You can learn all about our Trading System by visiting the Forex Destiny Trading Course page. Our course is also available as a paperback book and for tablets and eReader’s / Kindle on Amazon, Walmart Kobo eBooks and with Barnes & Noble.