Last year about this time, we discussed why the seasonality trade might fail: Sell in May (but don’t go away).

We could see a similar pattern develop this year, albeit with a few modifications. In 2004, a series of sell offs and rallies led to new low in August. That very oversold condition led to a rocket launch that lasted til year’s end.

While I do not believe we are as oversold here, we could see a decent bounce back towards all that overhead supply from the prior trading range. A failure at those levels could set up a sell off into early Summer. If we get to very oversold levels (worse than the present level) we could see a stronger rally that lasts the rest of the year.

Therefore, I remain a seller of any move towards Dow 10,400 and Nasdaq 1990.

Once again, you can Sell in May — but do not go too far away!

Category: Markets, Technical Analysis, Trading

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