This would be one of those years where the "sell in May and go away" proverb was very effective.  For whatever reason, the "rule" has become less and less effective in recent decades.  If you take the rule since the beginning of the Dow, it looks like a rule you should certainly follow.  Slice that backtest into something more recent and it looks random at best.  This may be evidence of one of the oldest trading systems getting discovered and fading away.

But regardless of that, if you did sell in May this year, you missed out on a 15.36% (1969 point) decline on the Dow.  The Nasdaq did better only shedding 7.2% or 161 points.  And as we've seen recently, 161 points is a daily gyration for the Nasdaq <grin>.  Finally, our well diversified friend, the S&P 500 lost an even 11.0%. Ready for a real kick in the pants though?  The small cap Russell 2000 gained 2.2% since May 1st.

What does this mean?  Typically larger cycles (i.e. bull to bear, back to bull) have sector subcycles and then of course, smaller sector subcycles within.  But as I mentioned in a post earlier this year, large caps had been outperforming small caps for over a year and growth had been outperforming value.  This is backwards from the norm, but totally in line with the end of a bull and beginning of a bear.  Most speculate that this is because people start getting defensive.  So they hang up their high flying small cap for a GE, CPB or WMT.  This inflates the price of the stalwarts. This usually marks the beginning of the end of the bull cycle.  Smalls have already been underperforming, but they get taken out to the toolshed for another shellacking.  Then the stalwarts start to crumble as fear sets in.  Then quietly as the big boys are free falling, the VIX makes multi year highs, bankruptcies follow, unemployment shoots up, growth stalls or goes negative ... small caps start to get a bid.  Before the major averages pull out of the tail spin, small caps are showing gains.  This usually gives birth to the new bull.

So is it different this time?