Sell in May and Go Where?

04/04/2012 10:15 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

MoneyShow’s Jim Jubak discusses the historical performance of this popular Wall Street euphemism, and shares his view on what may happen in 2012.

Go away in May. It’s a very, very important Wall Street saw.

It worked really, really well in 2011, when the market peaked on April 29. If you had sold then and then didn’t buy again until November—remember that the market bottomed on October 3—you would have gone almost all of this rally with almost none of the downside.

This is not an unusual pattern. It’s actually a pretty good historical pattern, but it tends that the six months that begin in November and run through May are the six months that really perform best. In fact, if you own those and you didn’t own the rest of the year, you would have done a lot better than just owning the whole year.

The six months, conversely, that go from May through the November seem to be the weakest part of the year. If you own only for that part of the year, you’re even actually looking at maybe being down for say 50 or 60 years, historically.

So when you go to a year like this one, where you’ve done a big, big rally—12.3% as of March 27—there’s a very strong pressure to go away in May. You really don’t know what’s going to happen for the rest of the year. There are lots of worries out there.

The question we’re looking at now is, does this become a sort of self-fulfilling prophecy? If enough people go away in May and sell, then of course this part of the year will be really a bad six months. That’s what I think we’re looking at. That’s what I think is weighing on the market.

I think we’re going to have to wait until April and May to find out. But right now, my guess—given the way that Wall Street likes to game their results—is that we’ll see a pretty strong Go Away in May effect in 2012.

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