‘Sell in May’ crowd may soon come back to stocks

by Michael Tarsala

Sell in May, then, “BUY away!”

That would have worked a lot better this summer.

The old “Sell in May” strategy with plans to buy again in the fall is now in danger of being a wash – and perhaps worse.

Source: Stockcharts.com

Markets were pummeled in March, down about 10%.

Since early June, they have made a series of higher highs and higher lows, and are now once again approaching the point where the selling began in early May

It”s been a long climb back. But in recent days, the 50-day moving average for the S&P 500 began to turn higher again, one indication that the long-term trend is now to the upside.

It remains to be seen if stocks can rally past the next point of volume resistance, near 1400.

Yet you have to wonder if those who did sell in May could soon re-enter, especially if the U.S. and the ECB announce more fiscal stimulus.

Here’s what Priceactionlab.com’s Michael Harris had to say about that scenario:

It appears that many of those who sold during May are now seeing higher prices. If the market starts getting an upward pressure from massive money chasing it to the upside, many naive fund managers who bought into this “sell in May and go away” thing will see the exit.

A combined QE by USA and EU will send massive new money to the stock markets and that in addition to the sideline money may drive the market to new highs for 2012 and beyond. This is a very optimistic scenario but one to keep in mind. Regardless, the ride will be very volatile and only strong hands will end up making a good return.