Why „Sell in May and go away“ isn’t a great idea this year

It looks like the economies of this world will open up again. If it’s too soon or not, we will see with upcoming cases and death numbers in the following weeks and months.

But we’re already right in front of the month May and an old stock-exchange wisdom says: „Sell in May and go away, but remember to come back in September“.

If we’re looking to the numbers in relation to this statement, we can see that this really worked quite well in the past. Unfortunately, this 2011 edition is the latest version of this graph, published by Bloomberg.

But besides that, if you look at it a little bit closer you can definitely see that in the month of June till September, we saw the slightest movements in the S&P500 in relation to its historic background.

Unfortunately, this year we’re right in the middle of a crisis and this could lead to more volatility and more movement also in the following months even if some experts say that we already reached the peak.

Nothing is clear for the moment. Equities are rising cause of cheap loans and new printed money by the central banks. But this is only the half-truth.

In my opinion these measures only help big institutions and stock exchange listed companies.

On the other hand, if we look to the real economy, we see another picture, cause these measures won’t help them. Many companies don’t know at this point of time if they will be able to survive this crisis without enough help by the government.

We will probably only be able to derive the consequences of this at a later point in time, but it’s important to keep that in mind.

But here we’re talking now about the real-economy and not the like I call it „stock-listed economy“. And here comes the truth: As long as central banks will print more money and buy back more assets, the prices of these assets will increase in value. (cause additional liquidity will boost the markets and let assets sky rocking in value)

No doubt about that. However, this also confirms my assumption that the stock-listed economy is becoming increasingly isolated from the real economy. (of course only if you look at it the same way I do)

Now we still can argue if this is a bubble that gets bigger and bigger and bursts one day or if this is the new reality of two different economies with also different rules and own characteristics.

There are many things we have to keep in mind. Just think about what could happen if we see a following hard second wave of covid-19 cases and we have to take a second lockdown to protect our citizens. Would the FED again print more money to as they say „protect the economy“ ? I hope not that we will see this kind of a second test of the markets, but who knows.

However, stay vigilant about the upcoming months. There could be still huge opportunities in both directions, upwards and downwards and that’s the reason why I think it’s a bad idea to stay away from trading/investing in the upcoming weeks.

For a short-term trader like me these circumstances only play a minor role but for mid and long-term investors the fall high is still enormous.

My advice to you is whatever you do, learn how to hedge your positions to protect yourself in these challenging times. It’s all about risk management to succeed in the long term, whatever you trade or in what you invest.