Should you 'sell in May and go away'?

Readers are likely familiar with the phrase "sell in May and go away." But Tom McClellan of Oscillator fame points out in his Friday report that the pattern is dramatically different for the S&P 500 during Democratic presidential cycle years.

A seasonal pattern is created by adding together the percentage price swings in a year and dividing by the number of years to get the average tendency of the market. Looking only at the years that a Democrat is in the White House, the "sell in May" pattern disappears. For those investors relying on seasonal patterns, this year could be different if the patterns hold up.

However, with the stress in European debt markets, being bullish in May is far from a layup too. Our point is that relying on one technical tool -- no matter what it is -- is not a high enough probability strategy. Investors should instead use a range of indicators to navigate the markets; one from each of the following areas:

1) Trend

2) Momentum

3) Seasonals/Cycles

4) Breadth

5) Volume

6) Sentiment

The more indicators that confirm the outlook, the better your outcome will tend to be. If you are getting mixed messages, don't put all your money on the line. Learning how to scale in and scale out of positions will also tend to improve your bottom line.

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