Sell In May And Go Away?

There’s an old Wall Street adage that you might be familiar to you. It says, “sell in May and go away.” You’ve probably that before, and it sounds especially tempting if you want to summer in the Hamptons. But it’s not just about fun in the sun. It’s based on the belief that stocks do much better from November to April than in the other months of the year. And it’s not just superstition. An updated study by Plexus Asset Management of the S&P 500 Index shows that the returns from November - April from January 1950 to March 2009 were 7.9% on average whereas those of the May-October periods were 2.5%. Is that confusing? Take a look at the chart below and it should be clearer.

From November to April stocks perform better on average than they do the rest of the year. Okay, so now that we've got that straight - how would you trade it? Using this strategy, most if not all of the stocks in your portfolio would be sold at the start of May and the proceeds held in bonds or a deposit account; then you'd go on a buying spree again in the autumn, typically around Halloween. But is this a smart way to play it this year?

Not according to Fast Money trader Joe Terranova. "I think 2009 is going to be different than any other year," he counsels. "This is a traders market and investors will have to be far more tactical that that adage allows."Joe Duran, of United Capital Partners isn’t taking the saying to heart either. "This year you’re talking about a 30% decline over that ‘good period.’" In other words, you have to toss out the playbook because this year is unlike most others. So how should you trade? Duran says, "if you have a long term perspective over the next 6 months, buy the dips.”