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Sell in May, but Don’t Go Anywhere

Book short-term profits now and wait for better buying opportunity


With Spain officially in a recession and Europe on the brink of one, stocks headed modestly lower yesterday. U.S. economic numbers didn’t help the market either with a lower-than-expected personal spending report for March, which failed to offset a stronger-than-expected uptick in personal income.

At the close, the Dow Jones Industrial Average fell 15 points to 13,214, the S&P 500 was off 5 points at 1,398, and the Nasdaq fell 23 points to 3,046. The NYSE had a slight increase in volume, trading 851 million shares, while the Nasdaq crossed 456 million. Decliners on the Big Board outnumbered advancers by 1.5-to-1 and by 2-to-1 on the Nasdaq.

Nasdaq Chart
Click to EnlargeTrade of the Day Chart Key

The Nasdaq, the leader of the move from January to April, stumbled yesterday as it failed to hold onto the slim ledge of hope at 3,059. The close was very near to the low of the day, and the stochastic turned down from an overbought condition, signaling that the support at the 20-day and 50-day moving averages (3,035 and 3,023) is about to be tested.

RUT Chart
Click to Enlarge

The Russell 2000, which represents small-cap stocks, has been sluggish after its January run to 830. But last week, it gapped higher and acted for several days like there might be some life in the old boy. However, yesterday’s performance, down 1.04%, was the worst of the major indices and fell to just above the major support zone at 785–815. And the stochastic issued a sell signal.

SPX Chart
Click to Enlarge

Each month, I post the long-term chart of the S&P 500 with its 17-month moving average. It clearly shows that this major index is in a bull market. However, it has turned down slightly, which results from the fact that April was the first monthly loss since November.

Conclusion: After the big run that began in January, the stock market’s momentum is lagging. With the historically range-bound months of May to October ahead, and “sell in May and go away” being parroted by CNBC and others, it is becoming more difficult to mount a major attack on the highs of April. The best and safest course of action is the one recommended since mid-last week: Sell your short-term profits and wait for a better buying opportunity.

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.

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