"Is "sell in May" still relevant?


Gary Christie


May 15, 2023



Min Read

"Sell in May and go away" is an investment strategy based on the historical underperformance of the stock market during the summer months, especially between May and October. The idea is to sell stocks and other assets in May and wait until November to reinvest, in order to avoid the seasonal downturn. 

Looking at the chart and technical patterns of the world's major indices, 2023 may prove the stock market adage wrong. But only if the bullish signals that are forming on index charts are validated.

Let's take a look at some of the major stock market indices in the US, Europe and Asia to see if any sell signals are flashing from a technical analysis perspective. 

US equity markets

Looking at North American equity markets, the S&P 500 index has been in a bear market declining over 25% since posting a record high on January 10th 2022. Traders are waiting patiently for a rebound however a strong trading range remains between 3800 support and 4200 resistance. A break above 4200 would have strong bullish implications and could fuel equity buying throughout the summer. 4200 and 4325 are key resistance levels to watch on a rebound attempt. 

The tech heavy Nasdaq 100 continues to outperform, rebounding from a 37% decline after its record high posted back in November of 2021. 13750 is key resistance in the short-term. A break above 13750 could signal the start of a new uptrend to test record highs. Only a break below 11660 would signal a retreat back to bearish territory. 

A ratio chart of the S&P 500 index VS the U.S. 10 year treasury yield shows some interesting reactions. The start of the Federal Reserve rate increases signaled the end of the S&P 500 rally as indicated on the chart below. The S&P 500 outperformance over the U.S. 10-year yield ended and now remains in a tight consolidation. 

The U.S. 10 year yield is testing support at 3.242%. A break below support could be very bullish for U.S Equities. 

One notable sector that supports U.S. equity markets is the S&P 500 Information Technology sector which just broke above August key resistance at 2642. The interest rate sensitive sector is trending higher signaling an accumulation of tech stocks instead of the usual retreat in May. 

For now, it looks like traders are betting on a hold in U.S. interest rates and a bullish summer as capital flows into big tech and growth stocks once again. 

Swiss Market Index 

In Europe, the Euro Stoxx 50, the DAX 40 and the CAC 40 have gained around 14% since the beginning of the year and the overall momentum remains bullish. However, the Swiss Market Index “SMI” is only up 7.9% and could catch up with its European peers in the coming months. And here is why. 

The Swiss Market Index had a disastrous March, swept away by the panic that preceded the rescue of Credit Suisse, one of 30 banks worldwide considered too big to fail. The takeover of Credit Suisse by another industry giant, Swiss bank UBS Group, ended the stock market debacle. 

The index was also weighed down by the poor performance of key sectors such as Healthcare and Food & Beverage, with stocks such as Roche Group, Novartis and Nestle significantly underperforming their peers.

Things have changed since then. The sector rotation that took place in April has brought these two sectors back into focus and the Swiss index could benefit from this.

According to Trading Central’s Technical View, from a chartist perspective, the reversal signal in January 2022 led to the implementation of several successive down legs that resulted in a total decline of around 20% in the index between January and September 2022. 

Since the low reached in September 2022, prices have formed a trend reversal pattern known as an "Inverted Head and Shoulders" which could trigger a recovery movement in the medium term. 

Furthermore, the uptrend line in place since the 2009 low maintains an overall long-term upward momentum and the test of the 200-week moving average may be attractive to long-term buyers looking to get back into the market.

Finally, the RSI indicator is not showing extreme tension either in the short or medium term.

A continuation of the rebound would be the preferred scenario in the coming months if the trend reversal pattern is confirmed.

Investors could then expect a return of the prices towards the resistances at 12100 or even 12800 points. For this scenario to remain valid, the index will have to hold above the support formed at 10400 points. Indeed, the break of this key support threshold would open the way to a fall towards 9030 points.

Japan’s Nikkei 225 Index

It seems “Sell in May” is not a good idea for trading Japanese stocks, which are trending up on a medium time-frame.

As expected, Japan's central bank has just kept its ultra-easy monetary policy unchanged, maintaining its key interest rate at negative -0.100%.

And Kazuo Ueda, the new Bank of Japan Governor, continues to point out that the central bank must maintain monetary easing at present as trend inflation is below 2%.

As a result, the Japanese yen has fallen back to two-month low levels around 137.00 to the U.S. dollar. 

From any angle, these could not be bearish factors for Japanese stocks.

In technical terms, the analysts at Trading Central have spotted that, on a weekly chart, the Nikkei 225 Index is emerging from a long-term triangle consolidation pattern in place since end-2021, and should be heading toward the key overhead resistance level at 30,000.

Plus, according to Trading Central’s “Technical Insight” App, Japan’s Nikkei 225 Index has indicated various bullish signals on a weekly chart year to date.

For example, on February 10, “Technical Insight” alerted that the Moving Average Convergence Divergence crossed above its signal line, calling for a bullish outlook for a medium term. 

And on March 10, “Technical Insight” pointed out that the 20-week moving average crossed above the 50-week one, which is another medium-term bullish factor for the Index.

With intact medium-term bullishness, the Nikkei 225 Index should target 32,000 on the upside once regaining the psychologically-important level of 30,000.  

Sell Japanese stocks and go away? No way.


Hong Kong’s Hang Seng Index


Hong Kong’s Hang Seng Index even lost more than 15% from the January top. However, other major global market indexes remain posting strong rebound.  

Currently, Investors are worried about the rising geopolitical tension between the U.S. and China. The U.S. government would like to ban Chinese social media providers, such as Tik Tok. In addition, the U.S. also wants to enhance the semiconductor export sanction to Chinese technology companies in order to limit the development of the Chinese artificial intelligence industry.

Technically, although Hang Seng Index retreated from 22700 after breaking above the long term channel drawn from the top of 2021, it remains trading above the key support level at 18300 and also the 50-week moving average.

In fact, the RSI still stays around the neutrality level at 50, suggesting the lack of downward momentum.

According to Trading Central’s Technical View, only a break below 18300 would turn the outlook to bearish and trigger the phenomenon of Sell In May.

Otherwise, investors should expect that the consolidation should be limited by the key support at 18300 and look for a rebound towards the January top at 22700.  

Gary Christie

Head of North American Research
Gary has over 15 years in financial markets. Prior to joining TC, he served as an equity & derivatives specialist with TD Bank and Bank of America. Gary is regularly quoted in Bloomberg News, conducts many education and market outlook webinars for investment institutions all over the world and has been a guest speaker at the New York Traders Expo.
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