Most are familiar with the idea of “Sell in May and go away.” Should one take this advice and sell a month earlier this year?
The chart below is from good friend Ryan Detrick, looking at monthly returns of the S&P 500’s performance, over four different time frames.
CLICK ON CHART TO ENLARGE
Despite the recent modest drop in stocks, the S&P remains just shy of all time highs, and near valuations which according to Goldman are at nosebleed levels and which market participants recently admitted are the most overvalued since 2000. Furthermore, with the market seemingly finding itself painfully rangebound in a world where until recently volatility was non-existent, traders desperate for alpha, have been scrambling for a strategy that produces a steady stream of profits.
The technical damage from yesterday has been severe.
Does this mean that stocks won’t bounce? No. But it is a major wake up call to investors that the market is in danger of going lower. MUCH lower.
The Russell 2000 leads the overall market. It is right at support today. If it breaks this line, the market could crash, unwinding the ENTIRE move from November 6 in a matter of days.
The economically sensitive Dow Jones Transportation Index (DJTA) has already taken out critical support.
"Warning! US equities can occasionally go down as well as up a lot."
Authored by Michael Lebowitz via RealInvestmentAdvice.com,
On the night of the U.S. Presidential election, many investment assets went from a state of sheer panic at the prospect of Donald Trump winning the election, to manic euphoria as the glorious narrative of Reagan-esque economic revival was born with Trump’s victory. Euphoric markets are not generally built on durable substance, and they eventually reconcile with reality as investors come to their senses.