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Chart of the Day
Worst 6 Month For Stocks: May to October
The S&P shook off last week’s selling and in x days rallied 132 points off its 4120.25 low. The bulls won and the bears lost. Straight up, I will never say the markets can’t or won’t sell-off. They eventually have to but for now, I think it’s easier and more profitable to buy the pullbacks than sell them. The economy is ‘flush’ with liquidity. Rates are still historically low and I am not even sure the markets will sell off if inflation picks up. You just cannot fight the fed or the trend. The ES makes a high, it starts to sell off over a 1 to 3 day period and could not look worse, and then in one day, the S&P regains most of its lost ground. I know, sometimes there are 6 to 9-day sell-offs but it’s the same thing over and over. There are billions of dollars that have been sidelined waiting for a 10% or 20% pullback.
According to the Stock Trader’s Almanac April, November, and December still hold the top three positions in both the Dow and the S&P. March has reclaimed the fourth spot on the S&P. Disastrous Januarys in 2008,2009, and 2016 put January into fifth place. You can divide the year into two sections and have practically all the gains in one six-month section and very little in the other with September being the worst month on both lists. According to Deepak Puri, chief investment officer, Americas, at Deutsche Bank Wealth Management, “A lot of the good news is priced in, we are overdue for a little bit of fatigue.” And according to Sam Stovall, chief investment strategist at CFRA, “While investors may not choose to actually follow the adage to ‘sell in May and go away’, the next six months have historically been a more challenging time for stocks. Since 1946, the S&P 500 has risen an average of 1.6% from May through October, compared with a 6.8% average rise for the other six-month period of the year.”
Our view, 60% of the companies in the S&P earnings are up 46% compared with the last quarter of 2020. It’s hard to argue with that and earnings in Europe are very likely to show impressive results as analysts now expect to bounce back 83% in the first quarter. Of the companies in the Stoxx 600 that have reported, 74% have beat expectations. Again, I do not doubt there will be pullbacks and corrections, I just do not see any type of ‘crash’ on the horizon. Our lean, it’s 7:30 PM Sunday night and the ES just traded 4232.25. Sell the early rallies and buy any 15 to 20 handle pullbacks. Then come back around 2:30 and try to figure out the close. It’s my guess the Dow and S&P will outperform the Nasdaq today.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
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