Sell In May and Go Away?

There is this old adage "Sell in May and go away" for Wall Street. Fact or myth? In essence, this is a belief that the period from November to April inclusive has significantly stronger growth on average than the other months from May to October.

Quite simply, the facts seem to indicate otherwise.

The chart below shows the percentage of time the market rises from May 1 through September 1 over various time frames. Over each time frame covered, the market has a positive return at least 60% of the time. Since 1929, there have been 30 years where the Dow went up more than 5% between May 1st and September 1st, while there have only been 14 years where the index declined by more than 5%. There have been 14 years where the index went up more than 10% versus only 8 occurrences of double digit declines.

Moreover, the fact that Wall Street has been in a free fall mood since the 4th quarter of 2007, it's high time for a decent bear rally, given that the latest economic data in U.S. seem to point to a gradual recovery and possibly an indication that the worst is over. The to-be released bank stress test will further give a clear indication of the health of U.S. banking industry.

As a matter of fact, the Dow has recovered by about 31% as of yesterday since March 2009.