Sell in May and Go Away? I Don’t Think So

Posted by Louis Navellier on 5/8/08 3:49 pm

Yahoo Finance’s Tech Ticker today featured a video interview (watch below) of a gentleman who listed 5 reasons why investors will “sell in May and go away” this year. I respectfully disagree with his forecast. Below the video player I list my 5 reasons why sell in May and go away will not happen this year…

"Sell in May and go away" usually happens when the stock has appreciated handsomely during the first 4 months of a year. In such cases, traders on Wall Street like to go to cash in May, take the summer off, and then go long again for the fourth quarter, just in time for yearend bonuses.

Five Reasons Sell in May and Go Away Will Not Occur in 2008

First, since this year got off to an awful start, traders likely made little or no money, so there is not much reason for them to sell in May and go away...in fact, they may have to actually work this summer for a change!

Second, the cash on the sidelines in money funds was recently (2/29/08) at an abnormally high 26.2% of the market. It is now at about 24.4%, since some money returned to the stock market in late March and April, but there is still plenty of cash on the sidelines to fuel a stock market rally. Furthermore, the tax-rebate checks could become a catalyst for a summer rally.

Third, corporate stock buybacks, outside of financials, remain relentless. Buybacks are still running at a 30-year high, so this should continue to help firm-up the overall stock market. Go to Page 2 and 3 of PDF

Fourth, when the Fed is at or near the end of cutting key interest rates, investors know this is historically one of the best times to buy stocks, because it usually precedes an upturn in the economy. This is largely why the stock market started to rebound in March and April. Go to Page 4 of PDF

Fifth, the presidential election cycle indicates that the best time to buy is in late April/early May in a presidential election year. These data go back 108 years. As a result, sell in May and go away does not usually happen in election years. Go to Page 5 of PDF

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