'Sell In May' And The Start Of The Worst 6 Months Of The Year

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Includes: XLY
by: Lance Jepsen

Summary

'Sell in May' marks the start of the worst 6 months of the year.

The worst 6 months of the year is from May through October.

All but one of all stock market crashes over the last 100 years have occurred during the worst 6 months of the year.

"Sell in May and go away" is upon us. The significance of "Sell in May" is that it marks the beginning of the worst 6 months of the year for the stock market.

Most new traders think that "Sell in May" means to sell out of stocks on May 1st and to buy Bear market funds. Such a strategy does not work very good and thus is discouraged. The real value of "Sell in May" is that it marks the start of the worst 6 months of the year.

The worst 6 months of the year goes from May through the end of October. Looking at over 110 years worth of stock market crashes, only one crash occurred outside the worst 6 months of the year: the Dot-com Bubble.

(Source: I created this chart using information on stock market crashes from Wikipedia)

Consumer discretionary stocks often get hit hard during the worst 6 months of the year. If we create a seasonality chart of XLY where the percent of months in which XLY closed higher than it opened since 1998, you can clearly see the poor performance during the worst 6 months of the year:

Click to enlarge

(Source: I created this chart using the Seasonality chart tool at StockCharts)

Traders often short sell consumer discretionary/cyclical stocks in May, and cover those short positions in September.

This week's Stock Market Prediction For Week of May 5, 2014 show goes more into "Sell in May" and the worst 6 months of the year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.