Sell in May and go away?

Good morning. It’s your weekly dose of TSP Talk.

Stocks rose again on Friday as the bulls continue to push this rally for all that it is worth. The Dow and S&P 500 both gained over 1.5%, and are within a few points of another multi-month high.

Just like last fall, the market seems to move in one direction longer than would seem reasonable. In September and October the major indexes moved relentlessly lower, punishing the bulls and catching all the bottom fishers off guard. Fast forward 6-months and now the rally is punishing the bears and leaving behind all those who have been calling for a top. Does the market have enough to keep the rally going another week?

The overnight futures are not always a good indication of how the market will close the following day, but as I write this on Sunday night, the S&P 500 futures are down 15.00, erasing Friday’s gain of 14.31.

The S&P 500 is pushing toward the high it made the prior week, but I want to point out again that the MACD [Histogram] is not confirming this strength. This presents a dangerous situation for stocks, at least in the short-term.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

We have talked repeatedly about the sentiment of investors. I’ve mentioned put/call ratios that represent the “dumb money” and the “smart money”. We’ve discussed different surveys that poll the dumb and the smart money. Plus we have a few indicators such as the VIX, that measures panic and complacency levels.

Today I wanted to mention another form of sentiment being shown by some smart money. This was on Bloomberg.com last Friday. The headline reads, “Insider Selling Jumps to Highest Level Since 2007.” It says:
“Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 institutional clients.
“That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began.”

You can read the entire article here: Insider Selling Jumps to Highest Level Since 2007

As we enter the final week of April, we end what has historically been the stronger 6-month period for stocks. You may have heard the phrase, “Sell in May and go away”. The basic strategy is to buy in early November and to sell by the end of April – although the first few days of May could be added in there since the historical weakness does not start until about the 4th trading day in May…

Charts provided courtesy of www.sentimentrader.com

I’d say this should be an interesting week for stocks, but then again, when’s the last time we had a dull week? With the futures down sharply (Sunday night) the morning open should get the week off to an inauspicious start.

One thing to note; The jobs report will be released on the 2nd Friday of the month in May, rather than the usual first Friday.

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That’s all for today. We update this market commentary daily on www.tsptalk.com.

Thanks for reading!
Tom Crowley
TSP Talk