The market started the month on a high note as stocks rallied before the open on news of Bin Laden’s death. There is no question about it — with the major indices completing double-top or triple-top breakouts, higher goals are in order. But, how high and how soon?
For the S&P 500, which broke from a resistance line that connected the Feb. 18 high of 1,344 to the April 6 high at 1,340, the target is easily calculated, and the answer is 1,425 to 1,430. For the Dow Jones Industrial Average, the target is 13,285, and the Nasdaq’s target is 3,025.
Time frames are a bit more difficult to measure, and the big question is: Should you sell in May and go away? That strategy, when combined with other internal and sentiment indicators, has worked well for us in the past. Last year, investors who took our advice missed the entire stomach-churning summer of 2010, in which the S&P 500 lost over 1% and came back in September. But it is never a good idea to clean out all of your positions based merely on historical predictions.
However, it is worth noting that we just completed a seasonally strong period from Nov. 1, 2010, to April 19, 2011, during which the S&P 500 gained 15.2%. Dorsey Wright Associates points out that we are entering what is considered the “weak six months of the year.”
By measuring the length of the current breakout’s base, I’ve concluded that we could easily see the highs by the end of May or the first week in June. And so, rather than going with the “sell in May” adage, we’ll monitor the move up and make decisions based strictly on the technical evidence.
Momentum is now high and stocks should run well in May. As always, there will be backing and filling, but weakness should be used as a buying opportunity.
For one tech stock to buy on a pullback, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at firstname.lastname@example.org.