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Stock Market Crash Season And Faith

The weakest 6 months of the year for the stock market goes from May thru October. Often times, the "Sell In May and Go Away" move starts in April as traders want to sell on strength and not be trying to close out long positions when everyone else does.

Last year, we didn't have much of a "Sell In May and Go Away", in fact, we didn't have much of a worst 6 months of the year evidenced by an S&P 500 that closed up almost 30% in 2013.

Faith in the stock market comes from stocks reflecting what happens in the economic cycle. It's the equivalent of people having faith that the U.S. dollar is worth something. If people no longer have faith in the U.S. dollar being worth something, the dollar is then destroyed. The same is true in stocks. If people no longer have faith that the U.S. stock market is representing the economic cycle, the stock market will crash.

In 2013, the S&P 500 closed up 30%. In 2014, we expect robust numbers to show for the economy to justify last year's record year. Remember, the stock market leads the economic cycle anywhere between 3 and 9 months.

I think the Federal Reserve knows that the economic cycle in 2014 is no where near to justifying the 30% move on the S&P 500 in 2013. The Federal Reserve is worried that faith in the stock market could be lost.

Critics of Fed tapering have said that the economy is not strong enough to taper so why is the Fed doing it?

The Federal Reserves' tapering program is all about preventing a complete loss of faith that the stock market leads the economy cycle. I think the Fed knows that the economy, in 2014, can't possibly live up to the expectations of a 30% increase on the S&P 500 in 2013.

The Fed's tapering program is the Fed signaling that this Bull market is long-in-the-tooth and that it's time for us to slowly move towards the next Bear market.

In this week's program, I go more into this idea:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.