“Sell in May and go away”

So does this hold true? With may coming upon us and a recent rally in markets since March 9th, 2009 there is a flood of articles that point to this question. Most notably, Brooke Thackray who publishes the Thackray Market Letter monthly has researched this topic and concludes that the best time to be in the market is typically from October 28th to May 5th. The reason he argues May 5th is because typically the markets rally the first few days of May. Most research is reflective of the S&P 500. Two other recent articles I would direct your attention to are John Mauldin’s May 1, 2009 “Thoughts from Frontline Weekly Newsletter” and “Sell in May and go away: fact or fallacy?” in greenlightadvisor.com.

What are the technicals telling us? The current price is above the 50-day and 100 day moving average which is bullish in the short term. We would be looking for the current price to break through the 200 day moving average in order to be longer term bullish. When we look at the volume of trades it appears light to moderate at best. We would want to see rising prices with heavier volume. The moving average convergence divergence (MACD) is bullish when the blue line crosses the red line and there is positive divergence. This appears to be flattening out so it looks like momentum is slowing. When relative strength (RSI) approaches 70 we get concerned that things are over bought. The technicals are flashing caution at this time.

The above writers all agree on one thing. Take this opportunity to reduce equity exposure. There may be some more upside in the short term but seasonality and technical analysis suggest reducing broad market exposure on the S&P 500.