After Record Highs, It Could Be Time to 'Sell in May'

NYSE traders
Adam Jeffery | CNBC

It may be an old cliche in the investing world but the term "sell in May and go away, buy again on Leger's day", looks increasingly like competent equity advice, according one analyst who told CNBC that investors should lighten their load and prepare for months of weak fundamental data.

The S&P 500 and the Dow Jones have reached new all-time highs in recent weeks after a "risk-on" rally that really gained momentum at the start of the year. The S&P posted its longest monthly winning streak since September 2009 on Tuesday, whilst the U.K.'s FTSE 100 has staged an 11-month rally, its longest winning streak on record since its 1984 inception.

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However, further gains are unlikely if history is to be believed.

"It turns out that some old proverbs are worth listening to. Our research shows that the St Leger method has worked well over the last three years as a whole," investment research firm wrote on its website. St Leger's Day is famous among horse racing buffs in the U.K. for being the last classic flat race of the season, which takes place in September.

Selling in May outperformed the "buy and hold" approach in each of the last three years in all but the most defensive sectors, according to the firm's research. And the sense of deja-vu was incredible leading up to May, it said, describing the market peaks and an unsettling macro background as good reasons for why global equities may make a move south if history is to be believed.

For investors focused on macroeconomic data, there's plenty to be worried about after a slew of weak data in recent weeks, including worse than expected readings from purchasing managers' indexes (PMI) from China and Germany and a fall in U.S. durable goods orders. Growth figures for the U.S. also missed expectations on Friday.

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"I would definitely lighten up, just keep track of that trend you know, because I promise you as soon as we start to see it's not heading so much higher people are going to be afraid, everyone wants to sell at the same time," Alejandro Zambrano, a market analyst at told CNBC Wednesday.

"The markets are strong but because of all this fundamental news coming in and also the statistical proof that markets don't tend to rally so much further from May, I would definitely lighten up."

Zambrano said this was especially the case for longer term investors but it depended on how quickly you can move out of your positions. The best way to play the market, he said, was to track the daily movements of an index like the S&P 500 and break away when more weak data meant investors would start getting worried.

(Read More: 'Worse Than Normal Correction' Ahead?)

"I think we're going to see maybe one or two months more of bad data and then when people are starting to get really gloomy again at that point it's time to go long again," he said.

Kumar Palghat, director of Kapstream was less convinced. "It has worked in the last couple of years," he told CNBC Wednesday. "I'm not sure you're going to get the same gains that you got this year."

If a market correction played out over the next month, Palghat said it could mean a 2 to 5 percent drop in equity markets on average. Bigger corrections such as 10 percent will need payroll numbers in the U.S. to print negative or U.S. politicians to tighten fiscal spending, he said, adding that both were highly improbable.

By's Matt Clinch; Follow him on Twitter @ mattclinch81