Sell in May and Go Away?

There are many Wall Street adages. Some seem to have predictive power, including the idea that one should "sell in May and go away." Such slogans have extra influence because of the catchy, alliterative qualities.

When Indicators Conflict

There are a number of conflicting adages at the moment.

There is the Presidential Election Cycle. We have not been big fans of this because the causal model is elusive. This year, however, we have both the Fed eases and the stimulus package. If ever the theory were to work, this might be the time. We also note that the popular bearish commentators embraced the theory when it suggested market weakness, but have fallen silent during the period when it suggested strength. This should be interesting to contrarian investors.

There are technical considerations. Can the market break through apparent resistance? That is the current battleground for traders.

There is the question of earnings forecasts and targets. First quarter earnings and outlooks were not as gloomy as expected. Financial writedowns? Yes. Other companies? Not so bad. It was an unexpected double-digit gain for non-financials.

Summing up the Prospects

Two of our favorite sources provide some insight.

Bespoke Investment Group notes as follows:

Bespoke readers might remember that Goldman got rid of bullish strategist Abby Cohen when the market was cratering in March. Cohen had a 2008 price target of 1,675 for the S&P 500, and after replacing Cohen at the market's bottom, Goldman's new strategist (David Kostin) lowered the firm's year-end S&P 500 price target from 1,675 to 1,380.

Readers should check out the entire article. The Goldman economics team is very bearish and that has now expanded to their strategist team. These are often quite different within a single firm. This is a classic case of "global strategists" versus bottoms up analysts. It bears watching, but regular readers know that we think the bottoms up guys are under-rated. Everyone is still fighting the old war of the 2000 tech bubble when companies and analysts hyped. When will we learn that the world is different now?

Muckdog wisely highlights some research from Sy Harding via Mark Hulbert. The gist of the story, which you should read for the full account, is that the "sale date" might be delayed this year.

That is consistent with our current model output, and our sense of the fundamentals. To check this out, readers might wish to revisit this article, from April 3rd.

And by the way ---

What happened to "Don't Fight the Fed"? We highlighted this as a "top secret" investment opportunity -- early, but not wrong.

Comments

[gordon]

We're at resistance, on a weekly S&P chart, the 80-week moving average gave a sell signal in January. It needs to get above 1435 to change that. And the 1st year of a presidential cycle is the worst for stocks. This rally is based on lies and hope, lies that the job losses was "not as big as expected" (by adding 267K birth-death jobs) and the media calling for a recession "short and shallow" or as Greenspasm's latest "PALE recession" a la 1990-92. Wrong. This will be like 2000-2002, only worse. Thinking they can "arrest" housing price declines, by interfering in the normal business cycle, the panderers in Congress will only make it worse.

[sivere]

Enter your comment hereFed, Fed, go away (don't come back another day):


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