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Sell in May and go away' makes less sense as technicals point to summer rally

As summer approaches, investors may want to think twice before adhering to the old adage of "sell in May and go away." Recent trends suggest that this strategy might not hold as much weight as it once did, especially with the looming U.S. presidential election.

Bank of America's analysis points to a historical pattern: in years when Americans elect their leader, the S&P 500 tends to experience significant summer rallies. Since 1928, this index has seen positive gains around 75% of the time during election years, with an average return of 7.3%. Even when considering all years, the S&P 500 has shown positive returns about 65% of the time, averaging 3.2%.

Robert (Hap) Sneddon, a seasoned technical analyst, suggests that investors should not simply heed the old adage. While the S&P 500 might weaken during summer, there are often seasonal opportunities in specific sectors like biotechnology, bonds, and energy. Moreover, he notes that for Canadian investors, currency fluctuations should also be taken into account, as the strength of the Canadian dollar against the U.S. dollar tends to vary.

Despite the ongoing debate between technical and fundamental analysis, technical analysis remains a valuable tool for investors. By studying past market behavior, technical analysts attempt to predict future trends. Tools like moving averages help identify trends and support/resistance levels, aiding investors in making informed decisions.

However, it's essential to acknowledge that technical analysis isn't foolproof. While it often provides valuable insights, it's not always accurate. Consequently, many investment teams employ a mix of strategies, including technical and fundamental analysis, to optimize their portfolios. For average investors, numerous online tools are available to incorporate technical analysis into their investment approach. So while "selling in May" might not be the best strategy anymore, staying informed and diversified remains key to navigating the markets successfully.

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