'Sell In May And Go Away' Might Come Early This Year

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'Sell In May And Go Away' Might Come Early This Year

There is an old market adage, "Sell in May and go away." This strategy is based on a number of factors, one of which is the fact that the stock market often sees a "January rally" and that can easily continue to build up as optimism carries into the Spring months. However, when the stock market gets to lofty levels and the month of May arrives, many investors and fund managers like to take profits by cashing in on the big gains.

This makes sense for a number of reasons: Fund managers like to "lock-in" profits before the end of the first half of each year. Fund managers and individual investors also like to limit risk exposure before Summer because they don't want the stress of being as fully invested before vacation time. Plus, the markets typically see much lower trading volumes since many traders and investors are on vacation between the June to August timeframe. There are other reasons why investors might want to consider the sell in May strategy a bit earlier this year:

1. The quality of the recent rally seems dubious.

2. The quality of the "recovery" also seems dubious.

3. The U.S. Government was the main cause of the housing crisis, and it continues to manipulate real estate prices in this country.

4. There are still major risks outside the U.S. which could bring our markets down significantly.

5. While China seems to have avoided a "hard-landing" for now, many are concerned that the real estate market is in a bubble.

While I don't advocate a sell everything approach, I think profit-taking and caution is warranted after the run this market has had. If just one major thing goes wrong in this world, it could be enough to set off a negative chain-reaction and take the global economy into a recession. Taking profits is rarely a bad idea, and staying fully invested at these levels seems foolish. That is why it might pay to raise some capital now, before the sell in May strategy comes up. Having a core position of equities along with some dry powder and keeping a look out for short-term trading opportunities is how I plan to play this market through 2013.

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