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!
"Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."
– John Maynard Keynes, Tract on Monetary Reform
- Economists and fundamental analysts often miss cycle turns.
- There’s always another recession — and expansion — coming (eventually).
- Learn to separate hand-wringing permabears from credible commentators.
If you have been listening to the financial press recently, you might be shocked (shocked!) to learn that inflation has been increasing and the economy is slowing.
You don’t say?
Of course, readers aren’t just now discovering that this economy has been suffering from inflationary pressures for more than two years, as a chart of the CRB shows.
It’s the same with GDP. Follow the numbers: The third-quarter 2003 number was 7.8% (originally reported as almost 9%), the next quarter’s was 4.2% (originally 6%+) and 2004′s quarterly data came in at 4.5%, 3.3%, 4.0% and 3.8%.
This week, we learned the first quarter of 2005′s number of 3.1% was way below consensus expectations. While some will tell you that 3%+ GDP growth is pretty decent, it’s the trend of waning momentum that is the issue. An early mentor of mine used to admonish traders to not look at the photo, but to watch the full movie instead.
So much for the idea of kinda-sorta-eventually-efficient markets hypothesis.
Slowing GDP and rising inflation have been discussed on this site for over a year now. The investing issue with macroeconomic concerns is not the actual data, but how — and when — that data affects psychology. It’s a question of timing. The commentators who are first now discovering weak GDP and inflationary pressures are not much help to you once the ocean is flat again.