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Sell Stocks in May and Go Away?

May 17, 2008
The old Wall Street saying "sell stocks in May and go away" may have more than the usual ring of truth to it this year. The unleashing of massive liquidity into the world's financial system lead by the United States Federal Reserve Bank has brought about a heady sense of euphoria among investors. The quarter of a basis point cut in the federal funds rate to 2% announced at 14:15 hours on Wednesday afternoon was enough to cause yet another celebration on Wall Street with the Dow advancing some 189.87 points to close at 13,010.00 on Thursday.

The price action Thursday seemed to be especially euphoric as it occurred just before Fridays jobs jamboree proceedings. The market is usually fairly quite before the NFP report. Economists are looking for another 70,000 loss in non farm payroll job yet that guesstimate didn't seem to suppress Thursday pre NFP report price action even one little bit.

I guess when investors are totally in a celebration mood they tend to overlook tiny little details, like a struggling economy with an eye popping home foreclosure rate and a sinking housing market still pulling it into a downward spiral. While my guess is probably just as much of a guessiment as anyone else's I will still opine that the stock market is set up for some real disappointment starting as soon as perhaps tomorrow with the NFP report. The stock market euphoria on the part of investors seems to be way premature to me.

The housing disaster shows no signs of bottoming out. The writedowns of billions and billions of dollars of questionable mortgage related securities and derivatives continues at most of the world's premier financial institutions. The war in Iraq still rages, costing the US about $12 billion dollars a month.

A second American aircraft carrier battle group has deployed into the Persian Gulf. No, I think that there are still plenty of thick oh so dark woods surrounding us and that a few nasty surprises are likely going to pop out from behind a few more trees as we head into the Summer months.

Sell in May and go away? Looks like a good idea to me. At current levels the stock market seems overly ripe for major disappointment on the part of euphoric investors. In the current environment joy can quickly turn into dispair. One who sells in May will likely be able to enjoy a nice holiday until at least late this year. That doesn't sound too bad to me in this tricky election year.
About the Author
Gerald "Taipan" Greene is a retired forex trader and portfolio manager who worked in Asia for over 20 years. The nickname was acquired in Hong Kong and is now used for a number of financial and political related blogs. One of them is at Taipan Investor Financial
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