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The market indices are up for the year, which many economists consider an indication that the U.S. economy is improving. But on the flip side, the bears are predicting a market drop due to tensions overseas. And this time, the shorts might be right, as shares fell on Monday:

For the year, the S&P is up 9.5 percent, the Dow is up 11.2 percent and the Nasdaq is up 7.3 percent. With the strong start to the year, many investors have been anticipating a pullback. Uncertainty over the economic future of Cyprus has weighed on stocks in recent sessions. European markets were closed on Monday for a holiday.

According to analyst Brian Amidei, managing director at HighTower Advisors in Palm Desert, California:

"It was very difficult for the S&P 500 technically to break through that high level and to even close there, so it doesn't surprise me that today is a down day. I think there's a lot of resistance at the 1,565 level," ....

There could be other reasons for the drop. As April 15 looms ahead, many investors are scurrying to get their "financial houses" in order. The difference this year is that many corporations paid "unnaturally high" dividends in 2012. And most of the payments will be taxed at the 2012 rate, which was the whole purpose for making the payments early. Here is an excerpt from one of the articles in December, as investors worried about the tax implications from the fiscal cliff:

Among the levies set to go higher (much higher) are taxes on dividends, where the effective rate would rise to 43.4% for top taxpayers vs. the current Bush-era rate of 15%. In an effort to preempt such a steep hike in dividend taxes, hundreds of companies have either issued "special" dividends in recent weeks or accelerated dividends originally set to be paid in 2013.

What is important here, is that "hundreds of companies" issued these special dividends to millions of shareholders. And the total dividend amounts paid to investors were substantially more than normal; some at almost $10 a share. So for a small investor who owns 1,000 shares, the payment might have been $10,000. Even at 15% the taxes would be $1500. Obviously you should not use this to calculate your dividend taxes. There are so many deductions, loopholes, and types of dividends. My purpose is not to offer tax advice, but to point out that all investors will probably have a higher tax bill from their dividends in 2012. Again, for those in the higher tax brackets, this will save money in the long run. However, average investors will pay more, which could have a negative effect on the market this month.

Normally many retail investors wait until April to add additional money to their IRAs before the deadline on the 15th. But this year some of that money may go straight to the IRS instead. Which means the typical "Sell in May and Walk Away" may start early. As you can see from the chart that begins one year ago on April 1, 2012, more and more investors are selling before May:

Chart forSIRIUS XM Radio Inc. (<a href=

Popular companies like Sirius XM (NASDAQ:SIRI), Apple (NASDAQ:AAPL), Nokia (NYSE:NOK), Ford (NYSE:F) and Microsoft (NASDAQ:MSFT) all fell in April last year. And they all stayed below the line on the chart until (at least) the end of August.

The old "Sell in May" saying stems from the fact that Wall Street money managers would leave the city and go to the Hamptons for the summer. By selling their investments they could use the money to fund their fun, and not have to worry about work. Critics have argued that we are now in the era of smartphones and laptops that can be kept by a chair at the beach. Thus the professional trading never stops. However, millions of retail investors might be extremely happy to be cruising the Caribbean without Internet access. As the Wall Street Greek points out, we enjoy the sun and the summer flings:

As it turns out, the adage holds some weight. Since World War II, the performance of stocks in the period running from May through October has been relatively weak versus the November through April span. There are various theories for why this is so, mostly keyed on fund flows and natural human instincts. Let's face it, we live differently from season to season, and some patterns hold true through the years and even through generations. As scientifically as we would like our lives and stocks to be, we can never discount our human characteristics, which skew patterns and break molds.

According to another report, the "good" months are November to April due to the Santa Clause Rally and the January Effect which I wrote about in December. The "bad" months are May to October. The author of this study also believes that this is a set investment pattern that has been going on for at least 50 years. This chart shows the entire market followed the pattern last year:

Chart forS&P 500 (^GSPC)

So should you sell your investments and walk away right now? If you are planning to do it, I would do it now. Because due to the recent gains in the market, which may not be sustainable, and the substantial amount of cash that will be needed to pay the additional dividend taxes, the May sell-off will probably come early. Many investors may need to liquidate funds to pay their (dividend) taxes.

However, it pays to look at each stock that you own very carefully, and consider the possible upsides before you sell. For instance, Sirius XM is in the middle of a $2 billion share buyback. So far there have not been any announcements as to when it will be completed. The company will probably take advantage of the lower summer prices in an effort to rack up more shares. Earnings for Q1 are expected to be up significantly at 50%, and revenue will jump about $100 million. Even though the stock will remain relatively stagnant without a catalyst, that will change with earnings and/or buyback news. Also, this company is not global. So investors that are afraid of the European gloom and doom tend to flock here during international uncertainty. Take advantage of the low price and either start a position, or add to your existing one:

SIRIUS XM ESTIMATES

Earnings EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate0.030.030.110.13
No. of Analysts12.0012.0012.0013.00
Low Estimate0.020.020.070.08
High Estimate0.030.030.130.17
Year Ago EPS0.020.480.510.11
Revenue EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate909.21M938.69M3.81B4.17B
No. of Analysts11111414
Low Estimate896.95M919.18M3.74B4.03B
High Estimate928.00M957.00M3.87B4.29B
Year Ago Sales804.72M837.54M3.40B3.81B
Sales Growth (year/est)13.00%12.10%11.90%9.60%

Apple is a little more tricky. Earnings for the current quarter are expected to drop in spite of a jump in revenue. However, many analysts and investors alike think that it has hit bottom. The one catalyst that I have found is iRadio. As I mentioned in a recent article, Apple is working very hard to launch its own new streaming service that some analysts have dubbed iRadio. With its huge cash reserves, it can afford to lose money streaming free music to the many different iDevices. Why? Because many experts agree that this would sell even more Apple gadgets. So the shareholders that sell this company in May could send the price even lower, which would offer a nice entry price for the "gutsy" investors.

APPLE ESTIMATES

Earnings EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Sep 13
Next Year
Sep 14
Avg. Estimate10.159.3844.1249.79
No. of Analysts47.0047.0056.0051.00
Low Estimate9.237.1638.8640.02
High Estimate12.0011.6951.0663.70
Year Ago EPS12.309.3244.1544.12
Revenue EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Sep 13
Next Year
Sep 14
Avg. Estimate42.71B39.79B181.53B205.03B
No. of Analysts43435249
Low Estimate41.06B33.52B170.31B175.03B
High Estimate44.18B45.68B197.14B251.20B
Year Ago Sales39.19B35.02B156.51B181.53B
Sales Growth (year/est)9.00%13.60%16.00%12.90%

Nokia is another very speculative play. Just when it seemed like it would surely fail, the shares suddenly popped up again. Earnings for the current quarter are expected to be much better than last year, however many analysts expect a loss. And revenue is projected to be lower also. The share price has been all over the place in the last year: ranging from $1.63 to $5.52. The catalyst that keeps the company alive is the Lumia 920 Windows Phone 8. The product is very popular, and it should eventually put the company back in the black. The current price could drop with a market wide sell off, providing a buying opportunity. However, any stock that has negative earnings is a tremendous gamble in my opinion.

NOKIA ESTIMATES

Earnings EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate-0.05-0.010.060.15
No. of Analysts15.0015.0021.0019.00
Low Estimate-0.13-0.08-0.23-0.07
High Estimate0.030.100.450.50
Year Ago EPS-0.10-0.10-0.220.06
Revenue EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate8.64B9.25B38.09B38.47B
No. of Analysts14141815
Low Estimate7.81B8.58B34.78B33.91B
High Estimate9.90B11.27B45.38B47.20B
Year Ago Sales9.64B9.67B39.65B38.09B
Sales Growth (year/est)-10.40%-4.40%-3.90%1.00%

Microsoft is another candidate for the May sell-off. The share price has remained flat all year in spite of coming out with a number of exciting new products. The Surface Tablet, Windows 8, and the partnership with Nokia to produce the Lumia should have sent the shares soaring by now. But it did not happen. The company formed another partnership last year with Barnes & Noble (NYSE:BKS) to produce student tablets via the Nook. That project was expected to be a game changer, however Microsoft came out with its own Surface tablet instead. There are recent rumblings about a new micro nook, but nothing concrete yet. Earnings for the current quarter are expected to jump 30%, and revenue should be 18% higher. Everything indicates that this stock is a buy. It is a very solid company. But the share price is stuck.

MICROSOFT ESTIMATES

Earnings EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Jun 13
Next Year
Jun 14
Avg. Estimate0.770.792.843.13
No. of Analysts32.0032.0038.0036.00
Low Estimate0.700.722.732.94
High Estimate0.820.912.993.41
Year Ago EPS0.600.672.732.84
Next Earnings Date: Apr 17, 2013
Revenue EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Jun 13
Next Year
Jun 14
Avg. Estimate20.69B21.32B79.47B85.93B
No. of Analysts30303534
Low Estimate20.05B20.41B78.04B81.61B
High Estimate21.63B23.36B82.44B91.26B
Year Ago Sales17.41B18.06B73.72B79.47B
Sales Growth (year/est)18.80%18.10%7.80%8.10%

Ford has been all over the news recently with the advertising fiasco, and large international losses in South America. Earnings are expected to remain unchanged due to exceptional domestic sales in the entire automobile industry. Revenue, however is expected to jump. An earnings surprise could send shares higher. However, if the financial crisis in Europe continues, shares will drop across the entire sector. The catalyst for the company is the new line up of 2014 models which are attracting a lot of media attention. This is another gamble that could pay off under the right circumstanced.

FORD ESTIMATES

Earnings EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate0.390.361.391.70
No. of Analysts17.0015.0022.0020.00
Low Estimate0.320.261.101.26
High Estimate0.460.411.552.10
Year Ago EPS0.390.301.411.39
Revenue EstCurrent Qtr.
Mar 13
Next Qtr.
Jun 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate33.77B33.76B133.96B140.63B
No. of Analysts13131816
Low Estimate31.55B31.91B125.98B132.25B
High Estimate35.90B35.41B142.15B146.96B
Year Ago Sales30.52B31.33B126.60B133.96B
Sales Growth (year/est)10.60%7.80%5.80%5.00%

In summary, the "Sell in May" pattern is very real. And there is a good possibility that the sell-off will come early. This year it looks like April is the new May. Many investors will use this opportunity to buy shares of some of the companies discussed in this article. But others will panic and follow the crowd; which the charts from last year show to be the more lucrative thing to do. The one exception is Sirius XM, which has pulled gains right out of the hat in the past.

Source: Sell In May: Here Comes The April Effect