mirkotoscano's  Instablog

May is near, will "Sell in May and go away" be right in 2013?

So far, Us indexes were stronger than I thought driven by Fed liquidity and dividends/buyback cash. But now? what to expect for the next month?

this is the situation on markets

STOCKS

US and Japan indexes are the strongest at the moment, while general Emerging Market and Europe are weak, especially EM. The German Dax is weakening and could drop in May. Eurostoxx is going sideway in this 2013 and a double top is looming.

Even if US indexes are overperforming, we recently had many distributional days and market now are in correction mode. Breadth show a new weakness in play and is in short signal again. S&P500 is still above the important support 1540: until this level holds, short term trend is up. A break below could lead to a loss of almost 100points and this could happen next month.

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COMMODITY

Are the weakest play in the game. Gold crashed recently and now the technical picture deteriorated (trend still up but it may need months to regain investor's trust). Crude Oil continue to slide, copper is at lowest since more than 1y and half. Basically commodities are not benefiting from the liquidity (Fed and BoJ) and signals an underlying weakness in global economy (in Emerging Markets too).

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CURRENCIES

euro/$ is stuck around 1,30l level and for the next months this will be the "kernel" , with a chance to swing from 1,25 to 1,35.

Yen was sold after Kuroda's (BoJ) new measures. It could continue to be weak this year, but in May could appreciate fast if US Indexes drop fast. It's again the carry trade currency.

BOND

Investors continued to seek for yield, going to catch high yield bonds and bank loans. They started to buy long term gov/corp bonds after BoJ decision trying to anticipate Japan purchases.

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SUMMARY

Cross market behavior shows that the huge liquidity from central bank isn't going to real economy. Commodities are weak and the same is happening in emerging markets. Europe is still in trouble and last GDP projection shows the German economy is weakening. Southern European countries are still in recession and won't end it until end of year (at the best!).

US and Japan are bought now, but recently signals of market distributions have appeared. Support are still holding therefore the market could regain strength again. Recent US macroeconomic data were below consensus and show the risk of the "Spring slump".

At the moment US stock market is in correction/distribution model and I'm not going to buy new stocks. If a follow through day with volumes will come, I'll be glad to buy in May, but at the moment...it seems a month to sell...again!

(and if this happens...it will be a buy opportunity)

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

This is the first post of 2013. I started new things this year in the weekend and free time isn't a lot.

I make an update with my view on the actual situation:

-Gold (GLD)- It wasn't a good trade as I supposed. Luckily I was able to exit the trade without big pain because I closed it in Early January few days after FOMC December minute. It's a pity because it was acting well after my purchase and was on the street towards 165-170 easily. Recently fund selling (Soros, Pimco and others) added further weakness and fear among investors. Have a look at area 150 that is a good level to play a short term trade; or eventually to go long for a longer time frame, but I'd add a out-of-the money put.

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Stocks- they were stronger than I supposed in the US. Especially in February while Emerging Markets and Europe dropped.

In the last few days US Indexes showed some weakness with two distributions days. Many leader stocks and Etf lost momentum and trigger take profit levels. Now we have to monitor if "purchasers on the dip" appear in the next 1-2 weeks. Friday volume were light and looked as a dead cat bounce. Major Fibonacci retracements are much lower, be aware of it.

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Sell signal appeared on Bullish percent. I would avoid buying on dips until bullish % doesn't improve much. Over next days we could have a situation like in October (that was a distribution period). I could sell some call spread (short ATM call on SPY, long OTM call with same expiration)

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BOND - Long term Treasury are falling (yields rising) and driving down Emerging Bond too in 2013. High Yield showed weakness only in February. Treasury are the weakest with yields rising since December.

Signals of consolidation appeared recently and bonds could return in favor if stocks will drop toward Fibonacci levels

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CURRENCY - Dollar showed strength recently and is near resistance at the moment. A further sell off on Stocks is likely only when dollar will strength further towards 23

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SUMMARY: signal of weakness in Stocks appeared this weak. It doesn't mean that stock will fall instantly, a week or 2 of distribution could materialize. I'd take profit on stock positions (or hedge them) now.

Fibonacci retracement are much lower on S&P500.

Gold could be a good tactical buy at 150 (GLD).

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

In the last posts I warned about a bull-market without massive buying pressure. I admit that I missed most part of the last rally just because I like to see volumes when market rise.

There were other indexes in the world that I enjoyed for the end year rally such as Emerging Markets and Europe, but I completely missed US Markets.

On 10 December I had a buy signal from the Bullish Percent and actually is still on the buy side. Until it is above the 20day EMA, you can try to pick some leaders stocks on the correction movements if they draw good patterns.

This indicator says that, even if at the moment market is in correction model, the situation isn't as dark as it looks on the surface. (of course doesn't say if will deteriorate next week...)

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Below have a look at the S&P500

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The Index dropped below the 50day EMA and could fall easily to area 1385. That's the level that is important to hold in the short term, otherwise a further drop of 40points could materialize easily.

The good news is that except for the option expiration day, volumes in the selling days weren't impressive. Of course this is an holiday period and they tend to be light, but could have been much worse.

So far this movement looks more as a correction from overbought conditions that the start of a new bear market.

How fiscal cliff will be solved and next earning season probably will lead the real move in January.

In Summary, situation in the market deteriorated compared few weeks ago, but light volumes warned that rally wasn't very strong.

Now market breadth is still positive, signaling the chance of a rebound in coming days.

Support levels are at :1385-1400.

Be patient, monitor the single stocks and jump on those who hold better in this correction phase when another up-move comes.

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GOLD- weeks ago I warned about a possible gold correction coming and it has materialized.

Now the indicator that told me to short gold, is saying to go long because a bounce is imminent.

I bought GLD at around 161 with OTM put expiring on February.

I think that could rebound but, at the same time I want some protection for the fiscal cliff mess next week.

Target: the minimum target is the upside of this channel at around 165. If that target is reached I'll probably sell half position and, on the residual sell 1month ATM call. But I'll be ready to close all if price return at my entry level.

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Disclosure: I am long GLD.