Sell in May and go away?

Welcome to May 2010. There is well-known slogan among investors in the world saying "Sell in May and go away". This applies more to US as US is having its summer holiday and many investors are on vacation. This caused a in dip in trading volume which may indirectly caused a drop in stock prices.

However, for the past two years, the trend seems reversed and the surge in stock even happened in May and the months onwards. My explanation for this phenomena is that when the economy is bad, there are less investors go for holiday and the stock market is still hot and the beach is less crowded. People refrain from travelling as the cost is high and personal budget cutting is good for the pocket during hard times. That is why we see the reversed trend in the past two years.

How about 2010? It depends on the number of investors that turns into traveller's headcount. By looking at the oil price and economic condition, I would say there could be a small correction in June. The reason is that there will be more investors turn travellers this year due to the improved economy. However, the recovery is still not strong enough with the US unemployment rate of 9.7% and interest rate of record low, stock market is still a better place compared to beaches. Some who made a fortune in 2009 record surge in stock market may sell in May and go for vacation. This may caused a small dip in trading volume and thus a small dip in stock prices. That is how I hypothesizes a small correction in June.

But all these assume that there will be no problem with the rest of the world. If Europe problems erupt one by one, there will be corrections but the correction could be small unless there is a systemic problem with the Europe economy.

Therefore I would say "sell in May and go away" but don't expect big correction as in March 2009.