Sell in May and Go Away | Podcast Episode #91

0:00
Hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market. This episode is all about selling May, go away. Is that gonna hold true for the market going forward? We’re about done with April. It’s been probably one of the biggest rallies in market history for the month of April.

0:16
I mean, the thing has taken off off of those March lows. So yeah, if you’re one of those people that I’ve held through the entire sell-off. This month of April has been a little bit of a breath of fresh air. Maybe you got into some lower prices and, and are looking to, uh, see that market rebound go, but We’ve always talked about it, and it’s not always held true every year, but the famous market saying is selling may go away.

0:37
And then come like November time period, you start seeing the volume pick up. We get past like the really historically bad months of August, September and October where a lot of your market crashes happen and a lot of your weak moments and the market tend to play out. And then you go from November till the end of April and then people repeat the process again.

0:56
They sell in May and they go away. They go to the Hamptons if you’re on Wall Street and the rest of us minions, we, we go and find an Airbnb somewhere and we, uh, duck out for the summer, I guess, because the volume does always drop off in the summertime. It gets very slow and the price swings are far less crazy, I guess you would say.

1:11
But to do a quick market recap on what we’ve seen so far this year and to kind of bring you up to speed here, January and February. Market was on pretty solid foot in there. We were hitting new all-time highs in mid to late February. It was around February 19th when the bottom fell out of the market, right? We hit new highs, and then the next day the market just started this perpetual decline and at first we’re thinking, oh man, starting to take this Wuhan thing pretty serious, but should we take it that serious?

1:35
And then all of a sudden it just tumbled all over itself. And then in early March, we had just a Wee bit of a bounce to start the month off. People got kind of optimistic, but it was pretty choppy, but it ultimately turned out to be a little mini bear flag pattern that resulted in this huge, huge push lower.

1:52
So then we bottomed out of around what, 2191 on the S&P 500 on March 23rd, and ever since then, we have been rallying. So, March 23rd through current day, which is, as of this podcast, April 28th. We have rallied relentlessly.

2:09
In fact, here’s what the crazy stat is. As of yesterday, the rally has lasted longer than the sell-off. Who would have thought that? So yeah, we’ve been in rally mode longer than we’ve been in the sell-off mode and so a lot of people think that there’s a market bottom end, but we’re coming up in that historically unpredictable time in the market.

2:26
Usually your, your good time in the market is January through April and then November through December, but we kind of had a rough February and March. We had a big rebound, but we didn’t recover all those losses. The S&P 500 didn’t recover all those losses, and now we’re sitting at May, at the cusp of May, wondering, are we going to sell the May and go away?

2:45
I tell you what, would not surprise me, I kind of think that we will. I think this market is setting up for another sell-off. I mean, look, you take the rustle, for instance, this thing’s rallied about what, 37% off of its lows. Yes, it took a massive hit. The S&P is up 30% off of its lows. The Dow is up 30% off of its lows.

3:02
Yeah, it could keep going. It could definitely keep going. However, the prospect looms large for a pullback at some point. The question is, when will that happen? Let’s go back in time a little bit and talk about the S&P 500 and the market as a whole in 2018. That was the last time we really had a notable sell-off, and it’s been interesting how it has followed that particular scenario.

3:24
Now, of course, the the December 2018. was nowhere near as extreme as what we saw, but the technical action’s been very similar. So you had a peak in early October and then you had this massive decline where the S&P 500 went from around 2950 all the way down to about 2610.

3:41
And then right in the middle of that, we had a little bit of a bear flag, just kind of like what we saw in early March here. And then it took another plunge lower into late October before putting in a temporary bottom. What happened from there though is we went on this huge tear and it didn’t take very long.

3:57
We, we went from a lows of 2603 all the way up to 2815. And what was interesting about that is on the Fibonacci retracements, that was a 61.8% retracement exactly. And then we just chopped around the rest of the month there. What was interesting about it is we actually finished up in quarter 4 of 2018.

4:15
Everybody remembers that period of time as a very awful sell-off in the stock market before we finally bottomed out on Christmas Eve. But in November, we were actually higher. And then in December, that’s where the whole bottom fell out. We retested the October lows, but we didn’t hold them. We tried to at first. and then it just fell apart and we went all the way down to 2346.

4:37
That was about like a 22% sell-off from the highs that it had been trading at just back in October. So let’s fast forward to our current situation. We peaked back on February 19th and we sold off, we bottomed on March 23rd, and then we’ve just been on this crazy tear, right?

4:53
S&P 500, like I said earlier, it’s up over 30%. But guess where we’re at right now? We’re at the 61.8% retracement level, just like what we saw back in 2018 in November when we’re thinking, man, this thing’s going straight back up to the all-time highs. Wrong. It went back down, tested the lows, and then took out that bottom.

5:08
So we hit the 61.8% retracement level of the entire sell-off. That means from the highs achieved back in February to the lows hit down in March, we’ve retraced 61.8% of those losses. That Fibonacci level is a You have three standard Fibonacci levels that people pay close attention to 38.2%, 50%, and 61.8%.

5:29
There’s a couple of others too, but I’m not going to get, get into that in this episode. But those are the three. We’ve blown through the 38.2%, we’ve blown through the 50%, and honestly, I did. not think we were gonna blow through the 50%. You go back to like 1929 when we had the Great Depression, you go back to things like uh the 1987 stock market crash.

5:47
Very similar we during those times, we retraced 50%, but we’ve blown right through that. But we gapped higher today. And we touched that 61.8% retracement level and we’ve been fading ever since. Now that doesn’t mean that we won’t just go rallying right back up and blow through it tomorrow or the next day or sometime next week.

6:03
But it is important to be cautious of the risk that’s underlying this market right now. We also have a bearish wedge. If you go to my YouTube videos and I, I really encourage you to go to the YouTube channel, like and subscribe. Uh, you’ll get notifications every time I do videos. I tried to do them about 2. Times a week right now.

6:19
But I talked about on the S&P 500, you have a bearish wedge on there and I can’t show it to you on a podcast because podcast is just audio, so you have to check it out on the YouTube channel, YouTube.com/SharePlanner. You can, you can get it right there, latest videos. But we gapped right up and ran into that 61.8% retracement level today, and we’ve been fading ever since.

6:35
Now, that doesn’t mean that by the time I finish and edit this thing and the market’s closed, it won’t be all the way back up to the highs of the day. That’s the kind of market we’re in right now. The S&P 500 is being blinded to the, to the reality that’s facing it, to the earnings, to the GDP, to the jobless numbers, to the fact that a lot of companies are going to go out of business.

6:53
And why is that? It’s because Congress is putting $2.3 trillion of stimulus out there. The Federal Reserve is willing to increase its balance sheet by an undefinable amount. I mean, people are expecting to get all the way up to $11 trillion. That’s more than anything we’ve ever seen during World War II, Great Depression, 2008, Great Recession.

7:12
The Federal Reserve is literally keeping this market from falling apart. I mean, you want a perfect example of what I’m talking about? Look at crude. Crude over the last couple of weeks, it has seen negative prices. We got tankers all over the coast of California and all over the, the, the, the world sitting offshore with just nothing but.

7:29
Oil barrels of oil. They can’t even deliver it. There’s nowhere to put the oil at. Yeah, energy just keeps rallying. In fact, if you pull up the energy sector, it has rallied 6 straight weeks. 6 straight weeks, energy has rallied, yet crude is trading at $12 a barrel. Last week, the contract that expired went all the way into negative territory, like $37 in the negative.

7:49
They’re not only giving it away for free back then, they were literally paying you to take it. Of their hands. And so the the headline you’re seeing right now is the S&P 500 is trading higher due to increased optimism over the economy rebounding or reopening or additional Fed stimulus, which we’ll probably see at one point, but at some point the market’s going to not care anymore.

8:10
It just won’t. You saw that with the interest rate cuts. It didn’t rally off of those interest rate cuts. It actually sold off every time they announced the interest rate cuts. But the Fed stimulus, man, the market just went bonkers over that thing. But you give me $10 trillion I can support the market pretty well too. I mean, anybody can.

8:25
I mean, it’s not, it doesn’t, it’s not brain surgery to, to figure out what to do with $10 trillion in order to keep the market from falling apart. So we talked about the 1929 retracement, the 2008, you know, I mean, All these, all these recessions and depressions and everything, they have one common feature. They all have dead cat bounces, right?

8:42
I believe we’re in the middle of a dead cat bounce right now. I don’t believe the technicals have really improved all that much to say, hey, we’re out of the woods, man. Everything’s good. You got people talking about, oh, we’re in the V-shaped bottom. Guys, that is just really crazy talk to think we’re just going to go bouncing right back up. We want to open up the economy. We got waiters, we got waitresses, we’ve got people doing service jobs and everything else.

9:00
They work at a manufacturing plant. They’ve been laid off, they’ve been furloughed, they get jobless claims. Congress goes in there and says, hey, here’s some extra money too. And I’m not saying that. It’s not a nice gesture, OK? I mean, if, if I was in that situation, I’d take everything I could too. But here’s the problem though, when you look at the aggregate, you want these people to eventually go back to work, but you’re paying them more money to stay at home and watch Netflix than they actually work at their jobs.

9:22
So how are you gonna get? The majority of those people back to work and some of you listening, and I’m not trying to insult you or anything, OK? I know for the most part, most people want, want to work and everything, but there’s going to be a percentage of people out there that are gonna be like, I’m going to ride this gravy train as long as I can. I don’t want to go back to work. I hated my job anyways.

9:38
Why would I go back to work, make less than I can sitting at the house doing some uh do it-yourself projects and, and making my backyard look better and building my wife as she should. Then on the flip side, you have the businesses. There’s going to be a lot of businesses that do open back up and say to the So, wow, I really dodged a bullet that time.

9:53
If it wasn’t for some of these loans and free money that was out there, I may not have survived. There will be people that say that. And so what are they going to do going forward? They’re going to probably look at how did they spend, where can we cut costs? Well, labor is a big cost for a business, any business. It’s one of the biggest expenses there is.

10:09
So they’re going to look at that it’s like, maybe we don’t need as many people. Maybe we can do more with less. So there’s going to be people that a percentage of people that don’t get rehired out of this whole mess. I would be shocked. If this time next year we’re not still dealing with 10% unemployment. I really think that’s very likely.

10:25
We’re we’re probably gonna go to 20-30% here with with the shutdown, but I wouldn’t be surprised if we stayed at 10% for a very long time. That’s like great recession levels. That’s like what we saw in 2008. So back to the question, do we sell in May and go away? I’ll tell you this, if you were caught by surprise, like most people were.

10:41
About this huge market itself and nobody was expecting to go down like 35, 36% like what we saw. And if you’re one of those people that were caught by surprise by this whole sell-off, and most of us, let’s face it, who really expected a 35, 36% sell-off from the coronavirus, right?

10:58
Nobody was expecting you that much. I mean, I was taken back by the steepness of the selloff, but then when you start thinking about it, hey, we’re literally shutting down a global economy. What else would you expect? So what do you do? Well, you gotta, you gotta draw a line in the sand. Look, this, this rally has been a nice gift for a lot of people.

11:14
You have a second chance in a sense. The Nasdaq 100 is actually in the positive for the year. So I mean, there’s, there’s, there’s a lot of Gifts that’s been going on for for traders and investors more so over the past month, being able to get off of those lows. And if you don’t use that as an opportunity to say, look, if we repeat the same thing that just happened back in March and we start to sell off again, this is where I’m gonna get out this time.

11:35
You gotta know that up front. You can’t, you can’t wait to decide, oh, we’re back at the March lows again. Hm. Do I sell or do I stay? I mean, that, that’s where I get the mass panic from people. My text messages start lighting up and it will again, if we retest those March lows, I’m going to get a bazillion text messages and emails.

11:52
They’re going to be like, hey, should I just sell everything right now? I mean, this, I’m really nervous about this. Well, you should be. But you can’t wait till after it happens to decide that you got to know up front, hey, I’m going to sell into strength of this rally. I’m going to continue to just take more and more of my my positions off the table. That’s a good approach.

12:08
Or you have to decide, hey, if it, if it drops back down to this particular price level, I’m going to get out. But here’s the other thing, when you get out, know where you’re going to get back in at. Maybe you don’t get back in for months. Maybe you’ll get back in a few weeks later. One thing about the stock market, it’s always going to do its own thing. It’s going to surprise.

12:23
What you have to do is react. You have to follow what the market’s telling you. I don’t always do the best job of that. I make mistakes. I didn’t take this rally as serious as I probably should have. I was a much more nervous about participating to the long side in the market rally. And so there was some opportunities for me to, uh, to get along and to make some money off of it, and I didn’t do a good job at that.

12:42
We were talking about what, a month of that? Guys, I’m fine. I mean, you, you take my trading performance over the course of many years, there’s gonna be a month here and a month there where I don’t do that great. But overall, I’m going to do fine on the year and the trading block. People who were following me, they, they avoided a huge 35% sell-off.

12:58
We, we actually shorted it some and, and made some money to that side back in early March and late February. So it was, it was, it was a good time. But you gotta know where you’re gonna get out if this market decides to take a, a dive lower. But most importantly, you gotta know where to get back into. You got to decide that too. It’s like, OK, if we bounced 10% off the lows or 5% or 20% off the lows, I’m gonna start getting back in.

13:18
I’m gonna build with position or maybe You say to yourself, OK, if it breaks below this this point here, then every 5% drop lower. These are arbitrary numbers. I’m not saying these are the ones to use, but I’m just giving you examples. You can say, OK, every 5 or 10% drop lower, I’m going to add another 25% of my portfolio or 10% or whatever to the market to try to scale in at a lower price so that I benefit even more so from the long term.

13:39
So there you have it, guys. That’s, that’s my two thoughts. Seller may go away. I think it’s probably going to happen. And, um, I think there’s a good chance that we see some weakness next month just like we did in December of 2018 following the November bounce. And it just, that tends to be what the market does.

13:54
We’re at a 61.8% retracement level. I think it’ll make sense looking back in time. OK, this is where the market rallied up to, but when you’re in the midst of it, it feels like, OK, this thing’s gonna go up forever. So. That’s gonna do it for today. If you have any questions, feel free to email me, ryan@shareplanner.com. Check out the YouTube channel.

14:10
That thing has been doing, uh, really great, some really good content there and I’d appreciate you looking at that as well. God bless guys.