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Bounce Should Weaken and Fail
05/01/07 5:00 PM EST
This morning, I went over some stats regarding what has historically happened when equities declined for consecutive days while heading into a new month. The bias was clearly to the upside, and it pulled through again today.
After the first day of trading, though, the positive seasonality wore away and returned to normal. And "normal" this time of year is beginning to tilt a bit to the downside. We've all heard of the "Sell in May..." tendency, and indeed over the past decade, the average maximum gain for the S&P 500 during the month has been +2.7% while the average maximum drawdown has been -3.4%. Not a big edge, but overall the bias starts to point down beginning over the next couple of days.
By yesterday's close, our short-term indicators had become severely oversold, and even with today's bounce the STEM.MR Models are below their lower trading bands. During healthy uptrends, these types of readings have led to a market low within hours with consistency, and with what we've seen so far today, we have no basis yet to assume that we're seeing anything other than that.
Over the past week or so, I've gone over the reasons why I think we're heading for a multi-week trading range, and if so then this initial rebound towards yesterday's breakdown levels should fail, oversold readings or not. I'll be watching for the Nasdaq 100 in particular to show signs of a failure under 1885 - if it continues to ratchet higher and score new highs, though, I'll have to admit defeat on the "trading range" idea as the intermediate-term positives continue to kick in. WE went 40% short into this "rally" today trusting my instincts but as you know I have been wrong before but I feel I had to give this effort my best ...cause going long on the BUY signals and then getting caught in a correction at all time highs is much more embarrassing and costs a lot more money...even with the wild gyrations of today we still are up in our model portfolio and with a sharp downturn we could be set up for a buying opportunity. I see some of our holdings from previous months in "BEAR " markets...do you remember BLUD ...down over 10% EMC is down 7% just this week. Not BULL MARKET ACTION !!!
We will see...I am doing my best for you and hope it pays off ...the earnings stocks have been right on and hopefully we can live through this little scuffle here to get back to what I am good at ...stock picking !!!
Tom
Have a great night and we'll see you tomorrow!
PAYPAL $75 to : tomandprisha@msn.com for a 07 memebership gives you 24/7 access to the professional data you need to trade. Precise decisions to make you money ...
Tom
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