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Dallas, TX
May 7, 2008, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Sell In May?
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What's Hot Today: |
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More Worries lie ahead as the stock market today's economic data could send
traders back into inflation fearing mode.
Today's Economic Calendar:
- 7:00a.m. MBA Mortgage Refinancing Index. Previous: -16.7%.
- 8:30a.m. 1Q Productivity, Prelim. Expected: +1.5%. Previous: +1.9%.
- 8:30a.m. 1Q Unit Labor Costs, Prelim. Expected: +2.8%. Previous: +2.6%.
- 10:00a.m. Mar Pending Home Sales Index. Expected: -2.0%. Previous: -1.9%.
- 3:00p.m. Mar Consumer Credit. Expected: +$5.5B Previous: +$5.16B.
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News For Thought
Obama is one step closer to the Democrat nomination as he won the North Carolina primary and showed significant strength in Indiana.
Fed official warns about inflation and hints at higher rates from the central bank. Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City told an audience, overnight, that the central bank was concerned about inflation and that once they begin to raise rates they would do so in a "timely" manner.
Hoenig is not a voting member of the FOMC, but he told the audience that he would not support any further lowerings of interest rates. |
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Sell In May?
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Minyanville Is Cautionville
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"Sell in May.. and go away" says Minyanville's Tod Harrison, a savvy trader and an eloquent writer.
Harrison says that investors should be focusing on risk management not "reward chasing," and that there are plenty of reasons to be wary of the market at this point.
Noting that Wall Street sounded the "all clear" after the S & P 500 crossed above 1400, Harrison lists the following reasons to take a step back and decrease your investment risk:
- The merger and acquisition craze has ended, and the era of friendly deals is long gone. Harrison cites recent backing off by Bank of America on Countrywide's debt, and the failure of Microsoft and Yahoo to merge as signals that the M & A catalyst for market gains is gone.
- The Presidential Cycle is due for a top on May 8th. That would be tomorrow, for those keeping score.
- The U.S. may attack Iran, a source of new uncertainty for the markets, and the global economy, as oil prices would likely climb significantly.
- Volatility is too low. Harrison points to the VXO index readings "in the teens" as a sign of complacency, and also notes that there is a "false sense of security" on Wall Street.
- The risk of a higher dollar. Harrison thinks that a higher dollar would be negative for commodities and stocks, and that it could drive away foreign investors.
Throwing Up Their Hands
The flip side to Harrison's downbeat comments come from a contrarian interpreation of Chuck Jaffe's latest Marketwatch column.
Jaffe's usual "in your face" stuff is not for everyone, and it's usually not part of our daily fare. Yet, this one caught our eye.
According to the column, many folks on Main Street are tired of taking risks and are giving up investing in the stock market. That's a bullish sign in our opinion, as despite a rally over the last few weeks, the proverbial little guy can't take it any more.
Jaffe quoted a 35 year old fellow named Sri, from Waltham, MA, as saying: "I'd rather lose nothing and get to where I feel I can invest again than be in the market right now."
Jaffe then goes into a discussion of risk, and how the public fails to understand risk, which is why many people make mistakes when they try to time the market.
But to us, it seems as if Sri's aversion to risk is widespread, it's as bullish a sign as we've seen in a long time. Fear is a good thing when markets are bottoming out.
Conclusion
The rally that started in March is consolidating. Consolidations have two dimensions, price and time. If we enter a prolonged trading range, we'll have a time consolidation. If prices start to fall, but remain within certain trading bands, we'll have a price consolidation.
Any break of support or resistance will lead us to the next phase of the market.
For us, it's a question of when, and in what direction this consolidation will resolve itself. As long as the market can stay above 1400 on the S & P, traders will remain calm. Any significant price erosion beyond that could lead a rise in volatility, and maybe some attempt at retesting the recent bottom near 1260.
Yet, for now, the burden of proof is back on the bears.
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Technical Summary: |
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Chart Courtesy of StockCharts.com
S & P Still Remains Above 1400
The S & P 500 and the Nasdaq Composite remain above key support levels, and growth stocks are acting fairly well.
The Nasdaq 100 remained above its 200-day moving average.
Stocks will look for more of a catalyst this week, other than last week's major mover, seasonality.
Our S & P timing model is still on the long side and we still have several open positions in our growth stock list.
Chart Courtesy of StockCharts.com
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Market Moves - Stock Of The Day
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S & P SPDR (AMEX: SPY) Nears Decision Point
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The S & P SPDR (AMEX: SPY) is near a major trend reversal.
Chart Courtesy of StockCharts.com
The S & P 500 has closed above 1400, but has yet to cross above its 200-day moving average, the line that divides bull markets from bear markets.
But the SPY ETF has brushed its 200-day moving average and is one good trading day from crossing above the line, a positive for the markets, if and when it happens.
Program traders use all kinds of catalysts to trigger their buy and sell programs, and the 200-day line, which is widely acknowledged as a key technical level, is but one of them.
Yet, it can't be ignored either, despite the fact that everyone watches it. In a market that has bottomed, this would be one level that is difficult to pass up as a point of reference, and a point to make longer term buying decisions. |
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