Stock Market Analysis

Thursday, April 25, 2013

Sell In May and Go Away?

Dow gains 24 points today on better than expected Jobless Claims.

Fundamentals
Jobless claims turned in far better than expected today, turning in 339K vs consensus of 350K. This release comes as a great relief to investors besieged by worsening economic data for weeks. Investors reallocated back into equities, raising bond yields across the board slightly and pushing the market to its intraday high in the morning session. However, it doesn't take long for short term profit takers to step in and take the market back down in the afternoon. Indeed, traders are currently selling into the strength on the uncertain short term outlook. A single good economic data just isn't going to change the whole picture. Options traders continued to keep total equities put call ratio near par in a vote for uncertainty and the VIX also turned in positive today rather than negative. Whenever the VIX turned in the same direction as the market, it puts a question mark on the move for the day. In a truly bullish day, the VIX should be negative rather than positive. All of these suggest that today's positive day may not truly be all that "positive".

Technicals
That immediate drop into a intermediate correction that I mentioned on Monday didn't happen. In fact, the Dow managed to get back above its 30MA but failed to make a new high. Indeed, getting back above the 30MA isn't necessarily a good thing for the market as it only builds up even more uncertainty and denies good entries. In fact, all it does is to set up exit points for the more savvy investors before the inevitable intermediate correction hits and that was what we saw in the market today. Yes, the intermediate correction is still in the books and the longer the market struggle against it, the harder it will eventually hit. I won't be surprised with the market turning around from here and go back below the 30MA line when investors "Sell In May and Go Away". Yes, it is the dreaded May Phenomena which usually hits when the first 4 months of the year are bullish. The intermediate correction might tie in with this phenomena this year and this is definitely no time to be newly long for short to mid term trades.

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

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