One of the most famous phrases in the trading world is ‘sell in May and go away.’ This may be true for stocks as seasonal adjustments kick in and the summer has a repressive tendency on the markets, often bringing prices down. Not good for your stock portfolio; hence the motto. Get back in cash or some other form of security.
Fortunately for us, this precept does not apply. One of the beauties of what we do is take advantage of intraday market moves. Prices are still there, and they still rise and fall. SPY prices continue to fluctuate all year. Why not take advantage of the gyrations?
Summer trading is different, no question about it. I can tell how rapid the effect took hold right after Memorial Day, as if a switch had been turned on. Volumes are weaker, which creates more sensitivity in the market. In other words, news that may not have influence SPY at all is now a major determinant in SPY’s price action. Traders must note these scheduled news items, anticipating where they may go.
Lower volumes also create volatility in selloffs. When SPY tends to drop, summer trading pulls in more sellers worried about their holdings, further dropping prices. Granted, this year is different with the new Administration. Prices continue to gravitate higher but it seems like the market just waits for any negative news to kick the floor out from underneath.
So what to do? Take extra care in your positions, opting for smaller investments and be satisfied with smaller returns. Where you may have targeted 8%, pull it back to 6% and do exercise diligence and safety. Don’t forget to buy time as your source of insurance. Buy near the money with delta’s of at least 40. This may not be the most exciting trading but there are times when preserving capital may be challenging. Keeping your money is paramount to successful long term trading.
Head Trader Hugh