How To Profit When Investors "Sell In May And Go Away"

Ipad, Online, Tablet, Internet, Screen, Digital

It'd be tough to overstate how strong the markets can be in April. The performance is almost always stellar – usually, only December tops it. The S&P 500 is up more than 3.5% this month, and we're only halfway through.

In fact, historically, the markets' highest returns usually pile up from October through April… which is why you get the old saying, "Sell in May and go away."

There are a lot of theories about why this happens. A really popular one is that Wall Street types flee town and open up their summer houses, though with millions of people still working from home, I'm not sure that adds up.

It doesn't really matter why it happens – it matters that it happens, and I don't think May 2021 will be an exception.

I'm not basing that on some traders' superstitions, either; I'm looking at one very specific number that's telling me the bull market's likely going to take a breather in the next month.

But, I'll tell you up front, I'm not worried about it. These stretches can be really profitable.

One Number Can Tell You a Sell-Off Is Coming

I've said before that, despite the "Robinhood Effect," with huge numbers of aggressive buyers in the market, that the risk of a slump or even correction is elevated. If something – anything – happens to freak out those buyers, or throw cold water on the party, the selling could be just as aggressive.

A classic technical indicator I use is the relative strength index, or, as you'll hear it called, the RSI. The RSI measures momentum – the size of recent price changes, up or down. You can use it for pretty much everything you can buy or sell in a market, particularly stocks and exchange-traded products. And when you're looking at an ETF that tracks the broad market, like the SPDR S&P 500 ETF (NYSEArca: SPY), you can get a good reading of the state of the market.

1 2 3
View single page >> |

Disclaimer: Any performance results described herein are not based on actual trading of securities but are instead based on a hypothetical trading account which entered and exited the suggested ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.