We should be seeing the old adage, “Sell in May and go away,” pop up in headlines, as technicians point to the strong tendency for stock prices to top out in May and underperform until November 1.
The pattern is the back-end of the “Best Six Months for Owning Stocks,”* (November 1 to May 1), which has consistently produced superior gains.
If the pattern repeats we can expect a correction starting soon, but that does not mean opportunity won’t present itself between now and November.
The market entered a correction in May in each of the last three years, but rebounded strongly before November.
The Debt Ceiling debate to start soon, unless postponed until September. The nation will hit the ceiling for borrowing to pay certain bills on May 18. While failure to raise (or extend) the limit would result in default, it is highly unlikely that will happen. The Treasury can resort to extraordinary measures to buy time until an agreement is reached, and there is too much risk for politicians in the event of default.
Nevertheless the debate could become unnerving as opposition seeks leverage to force their fiscal will.
ECONOMY:
Pending Home Sales jumped 1.5% in March on track to an increase of up to 7% over 2012. Sales are being held back by a limited supply, which stands to be good for home prices.
On a sourer note, the Dallas Fed Manufacturing Index plunged in April to a minus15.6 vs. +7.4 in March. Economists were expecting the index to read +5.0. The biggest weakness was in new orders. The production index slipped to minus 0.5 from 9.9.
TODAY:
So, just be aware that the “Sell in May” and the threats that a failure to raise the debt ceiling will result in default rhetoric could adversely impact stock prices, or slow the bull market advance.
After climbing such a steep wall of worries, this bull market has developed an immunity to more “worries,” referred to by Deutsche Bank’s economist, Joseph LaVorgna, as “crisis fatigue.
Near-term support is DJIA 14,763 (S&P 500: 1,588).
Investor’s first read – an edge before the open
DJIA: 14,818.75
S&P 500: 1,593.61
Nasdaq Comp.: 3,307.02
Russell 2000: 942.43
Tuesday, April 30, 2013 (9:12 a.m.)
SEQUESTER: Stay tuned, it is starting to hit.
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.
Apple (AAPL: $430.12) Street likes it, question is – how much ?
The market action Friday and yesterday confirms the Street likes what it read in the company’s Q2 report. The stock powered its way above key resistance at $421 and hit a high of $433, closing at $430 on impressive volume. This area between $430 and $437 should offer resistance to a move higher without some consolidation. Nevertheless, volume over the last 9 trading days has been very heavy, indicating buyers stepped in to pick up any selling that came down the pike and in fact powered its way back up from what looks like AAPL’s low for this down cycle.
AAPL has had rallies in the past that have been just as impressive price-wise but not with this much volume. It is what AAPL needed to flush out the persistent selling that has plagued the stock this year. Support now moves up to $423.
I am not long or short AAPL.
FACEBOOK (FB – $26.95)
Yesterday was a consolidation day after Friday’s sharp move up. Support is $26.86. FB looks higher, possible $27.50 – $27.75 today.
Between Aug. and Dec. last year, a trading range between$18 and $24 developed. That should provide support for FB and a buying opportunity. That’s where a three month tug of war took place between the believers and non-believers.
I am not long or short Facebook.
ECONOMY:
Very big week for economic reports.
Investors will be looking for assurance this week that the economy is not weakening. Evidence is beginning to surface that sequester is impacting the economy.
TUESDAY:
Employment Cost Ix.(8:30): +0.5%
S&P Case-Shiller Home Price Ix,(9:00): +0.3%
Chicago PMI ((9:45): 52.4
Consumer Confidence(10:00): 62.0
European Central Bank (ECB): Meets (time ?)
WEDNESDAY:
ADP Employment (8:15): 155,000
PMI Mfg.Ix.(8:58): 52.0
ISM Mfg.Ix.: 51.0
Construction Spending (10:00): +0.6%
FOMC Announcement (2:00 p.m.)
THURSDAY:
Jobless Claims (8:30): 345,000
International Trade (8:30): -$42.4 billion
Productivity and Costs (8:30): +1.3%
FRIDAY:
Employment Situation (8:30): 153,000
Factory Orders (10:00): -2.8%
ISM Non-Mfg Ix. (10:00): 54.0
*Stock Trader’s Almanac
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
