Bottom line: Don’t get picked off second base. You are in scoring position, be confident, but be cool. There is plenty of time to make good money.
We aren’t hearing much about “Sell in My and Go Away” right now, but in fairness to the jingle there is still a chance we will see a temporary top in May that precedes a correction of a few weeks to a number of months.
At the heart of the tendency for the market to cool its heels between May and the fall is the fact the preceding six to eight months (September to May) tend to be a barn-burner.
This sounds too simple to be stock market related where stocks march to computer algorithms and BIG money maneuvering, but it is what it is.
Every day the market closes up without a correction is a “new record” and makes headlines, no matter if it is a fractional rise or a healthy one.
This kind of news lures investors to load up even more and new investors to enter from the sidelines.
It is a self-fulfilling process for the bulls, just like it was for the bears in 2008 and early 2009.
Times like this human nature overwhelms reason, and investors begin to overreach.
I see a bull market with room to run, but not in a straight line. A correction will come, somewhere along the line of 5% to 8%. The Street is beginning to believe a correction won’t occur, that the market will continue to steam ahead.
That makes a lot of sense since there is a huge amount of cash out there with nowhere else to go.
But there are unrealized gains, as well. The S&P 500 is up 145% from its March 6, 2009 bear market low, and up 14% this year alone.
A correction will most likely come unannounced, starting inconspicuously as a blip, then feeding on itself as investors see paper gains slipping away.
Odds favor a sideways-to-down correction, more of a consolidation than abrupt plunge, but nevertheless, a change in the “notching up” pattern we have been seeing.
The market’s technical indicators suggest a near-overbought condition, but we have been here before and the market plodded through it without any damage.
Investor’s first read – an edge before the open
S&P 500: 1,632.69
Nasdaq Comp.: 3,413.26
Russell 2000: 970.41
Thursday, May 9, 2013 (7:50 a.m.)
Apple (AAPL: $463.86)
Looks like AAPL wants another shot at $470. It will have to drop below $453 if any meaningful pullback is in the offing and I think that would be limited to $436, though that is a stretch without unexpected bad news.
I am not long or short AAPL.
FACEBOOK (FB - $27.12)
FB rebounded yesterday from a level a bit above my support. There’s been a seller there for four days, enough to press it down close to 8%. It looks like it is trying to turn back up, but a pick up in volume to override the seller. At yesterday’s low of $26.65, FB retraced a bit more than ½ its April/May surge.
I am not long or short Facebook.
SEQUESTER: Stay tuned, it is starting to hit. Erskin Bowles told CNBC Squawk Box recently sequester is a “stupid” way to handle deficit reduction.
At some point, the question will be raised about the sequester’s impact on the economy, notwithstanding the uncertainty it brings to persons at risk, directly and indirectly.
It is too early to expect anything to show up in the indicators, and it may never be a major issue if our economic recovery gains traction.
It is one of those potential negatives one has to consider along with other ingredients that lead to a decision to buy or sell.
Employers (government or private) may opt to furlough employees without pay, cut back on hours rather than release them to unemployment at the expense of the government. Even so, several weeks without pay has an impact on the economy.
This is one of those uncertainties that, along with a few others, can trigger a consolidation or pullback in the stock market.
The reports on the economy are light this week with Thursday’s Jobless Claims and Fed Chief Bernanke’s speech at 9:30 Friday heading up the two key scheduled events for the week.
Jobless Claims 8:30)
Wholesale Trade (10:00)
Fed Chief Bernnke speaks (9:30)
Treasury Budget (2:00 p.m.)
“Investor’s first read – an edge before the open”
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