Sell In May and Go Away...or don’t [Updated 2024] (Preview)

By Lawrence G. McMillan

Back in 2014, we published an article entitled “Sell In May and Go Away...or don’t.”  At this time, we’re going to update the data in that article and discuss what it means.  It was in the double issue, TOS Volume 23, Nos. 9 & 10, published on May 23, 2014.

There is an old adage that says “Sell in May and go away.”  Although it’s not stated in that brief phrase, even if you do “go away,” you are supposed to “come back” at the end of October.  That is, you sell at the end of April and buy back at the end of October.  If all years are taken into account, that works pretty well. The majority of stock market gains are attained beginning in November of one year extending through April of the next year.  

The original work on that thesis was done by the late Yale Hirsch of Stock Market Almanac, and the work has been carried on by his son, Jeff.  Jeff has refined things a bit more to attempt to find the best exit and entry dates, but the idea is still the same.

However, sometimes that adage doesn’t work at all.  The following idea was first presented by Wayne Whaley (and perhaps others).  He noticed that if the stock market ($SPX) made a new all-time high in May, then that was going to be an outlier year for the “sell in May and go away” theory.  That is, the rest of the year is going to be positive, not negative.   Note that is not just a year-to-date high or a 52-week high, but an all-time high.  In most cases, if the market is so strong that it bucks the “sell in May” thesis right away by instead making a new all-time in May, it will continue to be strong for the remainder of the year.

When we put this theory to the test back in 2014, it was proven correct.  Since then, $SPX has made a new all-time high five more times in May (including this year).  The theory continues to hold: don’t sell if a new all-time high is made in May – or at least buy back what you’ve sold, in short order.

Our own study asks two questions:

If $SPX trades at a new all-time high in May:

1. what did the market do from the end of May until the end of the year (and what was the drawdown)?, and
2. what did the “Sell in May...” period do (i.e., how did $SPX perform from the end of April through the end of October)?