- Investors should abandon the often-said "sell in May and go away" market axiom, as a summer market rally happens more often than not,
Bank of America said in a note published on Monday. - Instead, investors should sell in July/August instead of May to avoid missing a strong summer market rally.
- The bank thinks summer seasonality data and contrarian bullish sentiment indicators suggest a summer rally or catch-up trade is in the cards for the
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Despite the S&P 500 recently stalling at the resistance level of 3,233, there is still potential for a summer rally, according to a note Bank of America published on Monday.
The bank said it's a mixed bag for the stock market right now. While it held big support at the 2,930 to 3,000 level last week, it also stalled out a number of resistance levels and is now range-bound.
Still, "seasonality favors a summer rally as contrarian bullish Farrell Sentiment and futures positioning across large speculators, leveraged funds and asset managers suggest that the pain trade remains higher and equities continue to climb a perpetual wall of worry," BofA said.
Resistance levels that the S&P 500 needs to reclaim include its recent high of 3,233, the late-February downside price gap of 3,260 to 3,328, and the mid-February peak at 3,394. On the flip side, if key support at 2,930 to 3,000 decisively breaks, support levels to watch include the 38.2% Fibonacci level of 2,835, the May lows of 2,766 to 2,797, and the 61.8% Fibonacci retracement level of 2,589 to 2,640.
The bank continued that investors should abandon the "sell in May" thinking due to seasonality data that suggests a summer rally is possible:
"The second best 3-month period of the year for the S&P 500 going back to 1928 is June - August, which has been up 64% of the time with an average return of 3.1%. Within this bullish three month period, most of the fireworks occur in July, which has been up 59% of the time with an average return of 1.5%."
The bank added, "so 'sell in May' should be 'sell in July/August.'"
Besides the strong seasonality data arguing in favor of
The bank said that large market participants "have not had an aggressive net long position as a percentage of total open interest since October 2018," suggesting that most investors don't believe in the recent 40% and higher rally in stocks.