"Sell in May and Go AWAY!" 2009

Every April, a hot topic among traders is whether or not to "Sell in May and Go Away". This year in 2009 was no different. If you take a closer look and compare 2009 with 2008, the market seems to be following the same pattern.

In April of this year, 2009, I remember reading and hearing about the possibility of the Stock Market going down due to the old saying/theory, "Sell in May and Go Away". This year the markets were coming off a multi month low and the momentum was pushing the markets higher.

From March up to May, most markets moved up 25%-30%, optimism in the stock market was beginning to be found everywhere, people were saying the Bear Market was dead, and those who missed out on the rally started thinking they should get in before they miss any more upside.

I also noticed a good market top indicator happen. One of my friends called me up at the end of the first week of May and said he thought it was a good time to buy a particular stock. I reminded him that he also called me about selling at almost the exact bottom of the market. I suggested that he not buy anything and that he was probably signaling a top has arrived. Sure enough, take a look at some charts to see how the first week of May looked.

Just like in 2008, May 2009 arrived and the markets continued moving higher the first week. As it did, people forgot about "Sell in May and Go Away" and the buying continued. For the two weeks since then, I haven't heard much of "sell in May and Go Away". Buy look at what's quietly hapenning. How far are we going to go down this time? Is this just normal profit taking occurring?

Take a look at the chart below of the DOW:

Sell in May and Go Away

Notice that March 2008 was a considerable low in the market which led to a rise of 10-15% and a move into positive territory for 2008 at the beginning of May.

Now take a look at March 2009. You'll see a similar pattern has occurred, a considerable low in March 2009, which has led to a large percentage move higher into May 2009, just below positive territory for the year.

Next, take a look at the first week of May 2008 and notice the initial high was followed by a small pullback, followed by another burst higher forming a double top in the third week.

Compare that to this year. The first week of May 2009 formed an initial top, followed by a similar pullback, followed by a burst higher forming another double top.

These moves are just about identical. As a matter of fact, the second high in last years double top was formed on May 19th and this years second high of the current double top was formed on May 20th.

Further confirmation that further selling may be ahead, is the break of the lower red support/trend line I have drawn on the chart, just as the trendline was broken in 2008 during the same month. One thing to keep in mind is that last year the market was not coming off a 50% decline as we are now. Knowing this, you can probably expect moves to the upside and downside that will psychologically continue to wear people out.

For short term traders and Swing Trading, these signals have provided profitable trading opportunities over the last two weeks. In my weekly ezine/newsletter, I pointed out 7 stocks to take a look at for shorting opportunities 2 weeks ago and they all have moved down between 2% and 30% to date.

If you haven't learned how to "Short" stocks to profit when the markets decline, now is as good a time as any. While the market may or may not continue to decline into the summer months, learning how to Short Stocks will provide trading opportunities no matter what the direction is.




Return From "Sell in May and Go Away" To "Market Commentary"


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