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'Sell in May'—is it on or off?

"Sell in May and go away" is a financial idiom that is causing more chatter this year than any in the recent past. According to this line of thought — May is supposed to mark the beginning of the sixth-month period that has historically been an underperformer — and this year it is getting its fair share of attention.

Statisticians are quick to point out that the May to November time period is the worst performing time period for the market — a time period that produces, at best, mediocre returns. Studies dating all the way back to 1694 — Yes I said 1694, some 320 years ago — seem to support the data, but let's not get crazy. The same period last year returned some 10 percent — a far cry from a poor return. Like any investment strategy — it's about planning, research and understanding the current events of the day.

Traders work the floor of the New York Stock Exchange.
Getty Images
Traders work the floor of the New York Stock Exchange.

This year, the talking heads cite a number of potential causes — the new "Cold War" with Russia over Ukraine; the possibility of a massive U.S. dollar dump, which would bring instability to the financial system; the continued Federal Reserve tapering of quantitative easing with a possible rise in interest rates; or the recent meltdown in some of the momentum names; the upcoming midterm elections; or the fact that we have now gone some 31 months without a broad 10-percent decline in the S&P 500. All valid arguments to make — but not ones that should cause an investor to "Sell in May and go away." The game is different, the world is different.

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Corporations have very strong balance sheets, merger-and-acquisition activity is surging, consumers have deleveraged, macro-economic data are improving — albeit slowly but it is improving, interest rates remain at near record lows, the U.S. fiscal drag is diminishing, European economies have stabilized, Greece, Ireland and Portugal have made great strides. China is not turning out to be the big bad boogeyman that so many were worried about and does appear to have transitioned smoothly to new leadership while successfully implementing meaningful market reforms.

A sense of global financial rebalancing after the Great Financial Crisis of 2007-2010 has largely been accomplished with most countries on the road to greater financial stability. Here at home, the fact that the broader market continues to hold in — even after the Fed withdrawal of some $40 billion a month in stimulus does give longer-term investors the confidence that the market has made great strides. Projections of 3.5 percent real annual GDP growth for 2014, continued job creation, improving fundamentals and core inflation well below 2 percent all argue for better days ahead.

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Moving out of equities is never a good long term strategy — but re-allocating assets within the space may be. We have already seen some moves out of the momentum names — names that have truly outperformed and into more stable value plays as investors/traders prepare what may be the coming correction — a correction that may well prove to be shallow and short lived at best while providing the base for a surge higher towards year end. What we have seen and will continue to see is investors moving into more defensive sectors that should provide safety in a time of some perceived uncertainty.

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We are now essentially through earnings season with little surprises, the Dow and S&P continue to flirt with all-time highs, the Ukrainian situation simmers below the surface and any pullback is met with real natural buying interest. The broader market, when under pressure, fails to crack leaving me to think that the old adage of "Sell in May and go away" may prove to be a mistake again this year.

Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.