May: A reversion trade?

May 4, 2017 12:51 PM

The old adage to “sell in May and go away” has not held in recent years. In fact, May has produced positive performance for four consecutive years in all three major indexes. That is the strongest run in May since the heart of the bull market when the S&P 500 produced 13 consecutive positive returns in May from 1985 through 1997. 

If you are a reversion to the mean trader this is setting up as a solid short as overall May remains one of the weaker months. It comes in as the 9th best in the Dow Jones Industrial Average, 8th best in the S&P 500 and 5th best in the Nasdaq Composite. Our Nasdaq numbers only go back to 1971.

When we compare the indexes over the same time frame, the Dow (0.26%) and S&P 500’s (0.59%), numbers improve but both are still must lower than the 0.94% average in the Nasdaq, so there does appear to be statistically significant outperformance in May for the tech-heavy Nasdaq. 

However, the overall stronger performance over the last 45 years can be attributed to two long bull moves, the second of which is getting a little old in the tooth.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.