(By Kathy Lien) There is a very old saying in the stock market that goes "Sell in May, and Go Away." This pertains to the notion that investors should cash in on their investments this month and take the summer off because June, July, August and September have traditionally been some of the worst months in the equity market.
Over the past decade, this adage has held true. If you were to sell the S&P 500 at the end of May, you would have avoided an average loss of -0.77% over the past 10 years. For the EUR/USD however you would have lost out on a gain of 0.19% but selling USD/JPY in May would have been a great idea because the currency pair fell steeply between June and September.
Looking beneath the hood however, the decision to sell in May and go away for the summer is not so easy for currency traders because if you did so in 2009 and 2010, you would have missed out on big gains in the EUR/USD. Between June and September of 2009, the EUR/USD appreciated more than 3 percent and in 2010 it rose nearly 11 percent.
This year, there is a reasonable chance that stocks could continue to fall, leading to more risk aversion in currencies because US data has been mixed and central banks are returning to easier monetary policies. However following seasonality without following stories blindly would be a big mistake.
