This Sector Heats Up in May

Hey Traders,

If you’ve been in the stock game for a while, you’ve likely heard the famous expression, “Sell in May and go away.

In my experience (which is 20 years’ worth this summer, if you can believe that!), this saying is overdone, lacks nuance, and frankly, it’s just bad advice!

Sure, at one point in time, that seasonal adage carried water, so to speak … 

There were valid reasons for many traders to scrub their portfolios before summertime, and not circle back until fall.

However, things have changed on Wall Street — we’re in the midst of a market like we’ve never seen before.

I don’t just mean the changes we’ve seen since the pandemic, either, which has fueled an influx of fresh retail-trading meat over the past year …

Sell in May” turned stale long before the Robinhood army emerged.

So today, I’ll tell you why you should ignore this trading trope that just won’t die — and I’ll even show you there are plenty of opportunities to profit this month … IF you know where to look.

“Summer” is a Noun

There are various theories about the origin of the “Sell in May and go away” saying, but among the most common is this:

Once upon a time on Wall Street, the big-baller traders would unload stocks before taking their families to summer by the water somewhere. 

They didn’t want to spend a lengthy vacation having to worry about their portfolios, so they tried to put a bow on their trading before hitting the road — and collectively, this occasionally translated into a summer slump for stocks.

Hence, why Wall Street was told to sell in May, before the seasonal dip.

But these days, how many people do you know who “summer” anywhere? 

I mean, where I come from, “summer” is a noun, not a verb.

It’s safe to say we’re no longer in the Seven Year Itch era, with trains filled with brokers headed to Long Island or Cape Cod, still wearing wool suits despite the temperature …

After all, with the advent of air-conditioning, a 30th-floor loft in Manhattan and a subway ride to the financial district don’t feel quite as stifling in the July humidity.

Not to mention, the actual process of trading these days is much less taxing.

These days, speculating with stocks and options can be done from the comfort of our own homes, or even from our phones, as opposed to in person on the floor … 

All that considered, one can conclude that selling in May and going away is gone with the wind. 

This Sector Heats Up in May

As I said earlier, there are ALWAYS opportunities to make money playing stocks and options, if you’re nimble enough and know where to look.

In fact, if we were trading on seasonality alone, one sector has been a huge BUY in May …

Tech stocks.

The Technology Select Sector SPDR Fund (Ticker: XLK) is an exchange-traded fund (ETF) that essentially takes the temperature of big-cap tech.

Among its top holdings are Apple (Ticker: AAPL), Microsoft (Ticker: MSFT), Nvidia (Ticker: NVDA), and Intel (Ticker: INTC).

And wouldn’t you know it, had you been long the XLK every May since 2010, you would’ve outperformed the broader S&P 500 Index (Ticker: SPX) 82% of the time.

XLK vs. SPX since 2010 – courtesy of StockCharts

In fact, recent history indicates selling TECH in May and going away for the summer would be a bad idea …

May is tied with July and August for the XLK’s best month of the year vs. SPX, looking back about a decade. (June, on the other hand, has been the worst month vs. the rest of the market.)

In closing, I’ll be keeping an eye on this sector — and hunting opportunities in other industries — over the summer, and you should too.

Your Only Option,

Mark Sebastian

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.