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Sell In May, Go Away - There Is Still Time
By Nic Lenoir of ICAP
Yesterday was a very odd day in terms of price action, the market rallied 2% overnight and opened up 26 ticks in S&P futures, but after that just grinded higher as it had just triggered an inverted H&S. We had suggested to sell 1,088 with a tight stop and reverse long for the day at 1,093. That would have allowed to make a small profit but nothing very exciting.
I think however the inverted H&S was a fake, just like the H&S last June which got a lot of bears in a lot of pain. Here is why:
Short term on the price action (S&P 5-minute chart) we see there is a lot of divergence, so selling here gives you great entry as the market doesn't have upside momentum. We have possibly completed a perfect a-b-c correction from the lows with c=a almost reached (1,1,09 is the extension), we are retesting the S&P 200-dma broken the other day so we should at least get some reaction off that resistance, and there is the overlap resistance with the lows May 17 in the morning at 1,112.75 providing resistance above also. So technically this is a very good entry point.
Looking at AUDUSD we see we have had a quasi-perfect double top and we are retesting the break here (0.8575 is the level) so we would sell AUDUSD which is a good proxy for risk with a stop on a daily close above 0.86, and we think the downside potential is quite large here. The flip side of this is looking at AUDJPY and say that we invalidated the break (you have to be the devil's advocate sometimes) but I like the fact so far we rejected tick for tick the 38.2% retracement.
All in all a great entry point to get short. A lot of people have been attributing the bounce in risk to end of month rebalancing by mutual funds. If that's the case even better it means it's "static" portfolio rebalancing providing us better levels to sell. Fixed percentage asset allocation is a prehistoric investing strategy and it's only fair for other market participants to be able to make money off it. I am sure all the market making equity desks had another perfect week trading!
The funding story is not going away, European banks have loan books that require uncollateralized funding in USD they cannot access right now, nothing has changed there. We are watching a repeat of 2007 in slow motion and market participants better acknowledge it.
Good luck trading,
Nic
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All of Mr. Lenoir's analysis is good, including the faux inverted head and shoulders, but this quote is the bottom line. If you are still long this fractured fairy tale of an equity market, do yourself a favor and sell, sell, sell.
There will be a commidity spike next week. Chinese production is slowing down because of the lack of oil and iron. They are buying everything they can get their hands on right now.
Also, when all the signs tell you to go left, you should take the right as all the lemmings will take the left and when it gets to crowed they will all want to take the right creating a squeeze to get in.
Can you back up your claim? Chinese production is slowing down because of a lack of chinese workers due to serious inflation in the major industrial cities.
http://www.chinapost.com.tw/china/business/2010/02/23/245539/Chinas-manu...
this market isn't a russian sub, you can't crazy ivan it and come out ahead.
I'm pretty sure that phrase suggests you should come back next year.
Screw that. Maybe never.
Tensions higher in NK/SK
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZm_diop6hhI&pos=9
This is going to be a war folks....ugly one too. I say within a week someone will open fire.
All in all a great entry point to get short.
Since the /ES was unable to break its 50% Fibonacci retracement overnight, it appears that wave (ii) up is completed and today starts (iii) down of [iii] down.
If you haven't done so already, "get short." Technicals indicate a possible "Black Friday."
Odd that no one in the financial world seems to care that even BP officials are declaring the "spill" a "catastrophe" now. Doesn't anyone think this will even slightly impact our economy? Anyone?
You would think it would. But it just goes to show how not free the markets have become. It is like seeing a car on the train tracks about to get hit but the driver doesn't see you warning him because he is looking for something in the glove box. So you just sit there and watch the inevitable.
@HW
Welcome to my world. The fundamentals have been ignored. That is the frustration that most Zh'ers have and flag-waving zombies like you come along and tell us how great things are. This economy was in the crapper long before the Horizon catastrophe but, yes, it will add to the problems. Then you have the ecological nightmare. Now there are some who are talking about "oil rain" along the inland gulf coast. Won't that be a hoot.
Sure, but we also have a situation where oil prices were artificially high to begin with due to GDP betting; crude stocks have been and remain high, so the price has not been driven by real-market concerns.
Prices have jumped since the BP spill on supply and regulatory concerns, but with their crude and distillate stocks the refiners do not have to take the pain for a while. Add that to the likely GDP hit from Eurozone deleveraging and you have a situation where there is little impulse (for now) for crude to go any higher than it already is...meaning little short-term economic impact.
This is scant comfort, I know, for the folks whose livings depend upon those waters. But capital markets practically rejoiced when New Orleans was destroyed; I see no reason they should show more consideration for wildlife and real producers of food in that neighborhood, do you?
BP is helping the Earth and the economy. They are trying to make sure they ruin the enviornment to preempt a possible alien attack. This way they will not want the Earth.
The spill was a detail in the grand scheme of thing, but Obummer's political reaction to it, stopping even the meager increase in exploration and drilling he'd recently announced with great fanfare, is really bad. The more money that goes to Venezuela, Russia, and the various islamic dictatorships, the worse the world is. Oh, and less supply means higher prices, which puts the brakes on the economy, which makes our fiscal and insolvency messes that much harder to pull out of. Drill baby drill may have a bad name, but its part of how we got as wealthy as we did. We mustnt overreact as we did with TMI, for example. There are lessons to be learned then applied so that we can benefit from said lessons. Stopping drilling in our time seems to be Obummer's initial position on this, and his brief feint, I repeat feint, in the direction of drill baby drill was always just that. Now we'll get the moratorium the drooling ecotards wanted all along.
i guess BP's oil slicked up your S&P 1175 rock solid bottom eh?? or whatever level you preached
All H&S are fake, i.e. irrelevant, inverted or otherwise. It is a meaningless technical indicator with next to zero statistical relevance or predictive capability.
Thankyou, For instance if Im at the race track I hang out at the paddock before the race and look at the nags. If the horse takes a dump hes 10 pounds lighter no matter what the racing form says. That works sometimes too like lines on charts. This is all very sophisticated technical stuff, sells books,stocks and horses.
Forgive the noob question...H&S == "head and shoulders" (TA voodoo terminology)?
Thanks in advance for clarification.
Well with algos running the show at this point, are any programmed to look for H&S patterns among the many other technical indicators they look for?
Sell in May, go away....
Is this a trick question?
Where does an algorithm go at the end of May? The Hamptons? Fat Camp?
Chess camp - where they can all wear their pointy Spock ears.
Selling AUDUSD, what about EURAUD as the cross and also the EUR, that has some interesting implications.
Ends at Fat Camp... who is the BIGGEST LOSER... The American Public.
Nic
Nice calls.
Nic, you are consistently one of the best publishers on this blog. Great work. Many thanks.
Newbie to ZH here. Here are some of my thoughts on current market valuation.
http://no-1-special.blogspot.com/2010/05/some-thoughts-on-current-stock-...
1080 is next, then will wait for 1095 to enter short, with a progressive stop loss 1100-1110 and 960-950 as a target. April highs should stay in place for the next many years.