We all know the old adage: "Sell in May and go away."
All this means is that the Dow Jones Industrial Average (DJIA) has returned an average of 0.3% between May 1 and Oct. 31, and 7.5% between Nov. 1 and April 30.
And it's done this without fail for 67 years.
That means, typically, most investors and traders are gearing up for a new bullish pattern (since that is how the markets usually behave).
But this wasn't like any year we've ever seen before.
There was little to no pullback in the markets – instead they skyrocketed to unprecedented highs, with the DJIA even hitting 23,000.
Now everyone is wondering what to do with their money next.
And these are the best time-tested strategies to use…
The Numbers Are in and the Markets Aren't Slowing
I've written about the six-month stretch from May to October before (it is the time period when the equities markets have been proven historically to be the worst, in terms of performance). But, as I mentioned, it's been a historical year.
And despite the fact that the markets didn't fall, this new bullish pattern will hold, as it has for 67 years…
Now there are two ways to play it, depending on your preference…
If you're a long-term investor, your normal strategy may not change much.
If your perspective is to simply ride things out during the summer months because you're not worried about how your portfolio is doing, then the good news is that you wouldn't change anything from your normal strategy in November for the very same reason.
But if you believe that the markets will keep going higher, the best thing to do is to talk your financial advisor about adding to your positions with the expectation of increasing gains on them over the next six months.
If you're an options trader, you'll want to stick to your rules.
Continue looking for bullish positions the way you normally would, but consider increasing the size of your option positions on your shorter- to medium-term option trades or even up to a year out. Again, you'll want to consult your financial advisor about the percentage you want to increase your equity on your overall account.
If you're not going to increase the size of your positions, you could also consider adding more option trades to your account. You could further diversify your account and take options trades on more than one stock per sector, or even take option trades in other sectors, if you were only focused on a couple during the May 1 to Oct. 31 date range.
The other thing to keep in mind is earnings…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.