The old adage about ‘sell stocks in May and walk away’ has shown up hot and heavy over the last two days. While many technical analysts may discount the adage, we have been around too long to do that. After the ESM16 closed down 27.25 handles at 2057.00 on yesterday’s close, the same weakness that hit the S&P showed up again last night; Asian and European weakness. The bulls have had their way for over 2 months and it looks like the bears are trying to make a comeback.
After a weak close the S&P futures took out last Fridays 2046.00 double bottom and traded down to 2041.00. We cannot rule out another rally, but it feels like the bulls have given up control to the bears, and with so many sell stops below the markets, the ES futures have reacted in kind. We have tried to stay away from being overly bullish after the big push back up, and now we are wondering if this is the beginning of a correction, just another pull back, or another head fake to catch the shorts off base? Either way the sell off has been a long time coming.
Global stocks extended their losses overnight as the dollar continued to rebound ahead of today’s key economic data. The S&P futures were down over -0.70%. Leading the way was the Stoxx Europe 600, which fell almost 1%, which in turn helped pushed the London FTSE down to its lowest level in over three weeks.
TRENDS
Up trends are defined as a series of higher highs and higher lows. Likewise, downtrends are defined by lower highs and lower low. Throughout this nearly unprecedented rally since the February 11th lows we have been repeating the same thing. We do not like this buying, the equity markets have become too high to buy, but at the same time, too firm to sell. Stepping in front of this rally and trying to pick a top is like playing Russian roulette, except your odds are much better playing Russian roulette.
What we have maintained is that the bulls have control of this market, and that it’s a dip buyers game until the market does something different. At this point, the benchmark S&P 500 index has begun to show that difference. We have noted the failed high just above 2100 similar to November and December. We have noted the lack of buyer conviction above that level last year and how pessimism is even greater this year. Now, for the first time since the February low, the ESM16 is making a series of daily lower highs and lower lows. The 8 day simple moving average was a solid support marker during the up trend but has turned to resistance now. The 2050 level has failed as meaningful support and is in the process of become resistance. This points to lower prices and a likely test of the 2000 area at least.
We remind you, “sell in May” doesn’t always come all at once. It doesn’t mean there will be an immediate sell off. What it does mean is that the best opportunities for the market to perform are done until a seasonal October low. As the markets head into the Summer, volume slows down, interest is lost, focus will begin to turn to the elections as well as the increased likelihood of an interest rate hike. We expected a lower high this year, and that 2100 would be the max high. Well, now we have it, or at least for now. Buying has dried up, and beginning from now and through the summer the bears have the jump ball, time will tell what they can do with it.
For now, the April low of 2026 appears to be in this week’s target and will probably be the last line of support before 2000. In the event of a meaningful intraday bounce the 2075-85 are will offer significant resistance.
In Asia, 8 out of 11 markets closed lower (Shanghai -0.05%), and In Europe, 11 out of 12 markets are trading lower this morning (DAX -0.75%). Today’s economic calendar includes MBA Mortgage Applications, ADP Employment Report, 10-Yr Note Announcement, 30-Yr Bond Announcement, International Trade, Productivity and Costs, Gallup U.S. Job Creation Index, Treasury Refunding Announcement, 3-Yr Note Announcement, PMI Services Index, Factory Orders, ISM Non-Mfg Index, EIA Petroleum Status Report, and Neel Kashkari Speaks.
Our View: The ESM took out last Fridays 2046.00 double bottom, traded down to 2041, and is trading 2045 at 7:00 am CT. For weeks the bulls have had their way, but with all the global economic turmoil, it’s easy to understand the weakness. Stocks closed lower Tuesday for the third time in four sessions. Traders are concerned about the recovery in stocks that started in February. Our view is to buy the early weakness, paying close attention to the globex low and sell the rallies which could mean anything from a 10 to 20 handle bounce.
Traders, The May 16 MrTopStep BootCamp is setting up to be the best one ever… The 5 day event will include William Blount, Tim from TopNotch Trading, Stewart Solaka from @ChicagoStock, David Dube @tradepilotpro.com, Rob from DTG, and a whole lot more!!!
Sign Up Here!
- In Asia 8 out of 10 open markets closed lower: Shanghai Comp -0.05%, Hang Seng -0.73%, Nikkei closed
- In Europe 11 out of 12 markets are trading lower: CAC -0.70%, DAX -0.73%, FTSE -1.14% at 6:30am CT
- Fair Value: S&P -5.95 , NASDAQ -7.71, Dow -83.72
- Total Volume: 1.8mil ESM and 5.4k SPM traded
[s_static_display]
No responses yet