Stock Market Analysis

Thursday, May 06, 2010

Sell in May and Go Away?

The Dow tested its daily 50MA today as it continues its drop today by 58.65 points on pressure from the Greece tragedy.

This week turned out to be extremely volatile as I have expected at the beginning of the week on mixed economic data and continued uncertainty surrounding the Greece problem. Even though this drop looks scary, it is totally reasonable and desirable within the framework of an intermediate term bull trend. As I have said before, this intermediate bull trend is extremely over extended and historically, the Dow does need some work to break out of its weekly 200MA resistance level as we have witnessed in the past. In fact, a few weeks of battling this level is totally normal.

Today's sell off has resulted in a huge ditch in the bond yield across the board and a huge surge in the total equities put call ratio to above 1 once again (see both charts). Such combinations always say market reversal the very next day so I would expect tomorrow to be a positive day in the market but whether or not the 50MA will hold as support level needs to be further confirmed.

So, is it time to "Sell in May and Go Away"?

Well, with today's technology and a chart of the Dow at everyone's disposal, I don't think it takes a lot of research to see that May isn't exactly a consistently negative month. In fact, it has largely been positive as well. So, lets not make rash decisions based on old adages and then give up precious gains.

For now, the Dow remains in short term neutral trend, intermediate bull trend and a primary bull trend.

Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!


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