Sell In May Is So Yesterday; A 35% Market Drop Is Not!

May 3rd, 2012
in Gary's blogging, Special Post

We have discussed the “Sell In May” scenario until we are sick of it. What many have been forecasting for over a year is the potential of a severe pull-back but hasn't happened yet to the amazement of many. The financial issues surrounding us today are many and depressing to the point that I can't understand how the ship with so many holes in its hull still stays afloat.

The answer of course is the hot air from the Fed's QE's and politicians around the World being blown into the hull is nothing more than a 'Jelly Doughnut' on a stick dipped in Hopium. Yet the ghost ship gallantly sails the seas looking for a big rock to crash into. The rock is out there waiting in the dark for the unaware market traveler. Time and time again the 'sheeples' have been warned of the dangers of plying the dangerous waters of late. The signals, indicators and tea-leaves all point to a reckoning of grave proportions lurking just below the surface, yet they go on ignoring the fate that awaits them.

Follow up:

My sentiments exactly!


Investors have ignored fundamental weakness for so long that they may as well be trading from the moon, perhaps on a trip funded by all the governments that have artificially propped markets.”

So are the markets set to plunge? I thinks so, not only because the markets have been artificially held up and “should be free from external manipulation”, but they are over bought and not cheap anymore. The retired university professors from Amsterdam think so too.

U.S. Stocks To Plunge? by Shareholders Unite

Since it's difficult to argue that stocks are overvalued, some kind of really bad development has to happen before stocks plunge in the order that Shoenberger predicts (35%, or actually more so since they went up significantly after Schoenberger made that call).

What could such a bad development be? Here are some candidates:

The single largest Black Swan lurking under the dark waters in my opinion is a war between Iran and the combined forces of the USA and Israel. There are a lot of plausible reasons why a war is possible. One is purely political because everyone ALWAYS rally behind the president boosting his approval ratings when going to war. (And just in time for an election) Another is the bull-headiness of the Iranian government ignoring the saber rattling of the Israelis and the US. The US has moved its top of the line, 6th. generation, F-22 stealth fighter aircraft into Saudi Arabia which can defeat any known radar. And still, the Iranians continue to stonewall talks of dismantling their 'dreams' of becoming a nuclear nation.

Bulls Or Bears Gaining The Edge? by George Simone

Already, the S&P 500 index-- the market's broadest measure-- is on track for the seventh straight month of gains. And yet, there are still plenty of non-believers still out of the market, waiting for the bears to finally give up and let the bulls have their way.

. . . the bulls are still hesitant and without conviction for this rally, which is showing up in the low trading volumes and low bullish participation levels in the market.

Just like the bull-trend index, this S&P index shows . . . are getting perilously close of losing their bullish configuration. When this happens, it could end the rally.”

Clearly the threat of a 'normal' seasonal decline of the markets is enough to get some out of the markets, but if we continue to see the markets rise on whatever 'promise of the day' is, will be an ominous sign of heightened peril. The brief heavy sell-offs during the past 2 weeks is telling, but the 'dippers' aren’t listening. In the long run a serious decline would be a healthy event shaking up the establishment to curb market manipulators, the crooks that proliferate Wall Street and the High Frequency Traders that add nothing to the market place.

Daily State Of The Markets: Ready, Set, Sell by David Moenning

The theory holds that stocks tend to do very little from the beginning of May until the end of October. A review of history actually backs up the concept.

In looking more closely at the data on a year-by-year basis, it becomes clear that when "Sell in May and go away" is successful, it tends to be very successful. So there definitely appears to be something to this little cliché.”

It appears the QE Hopium drug is doing its work pushing the markets upward, but like any hangover, this one when it comes is slated to be a dozy. The easy money is gone and the realization of hard times ahead is not fiction anymore. Mr. Larson explains his thoughts of QE the morning after.

QE3: The Morning After by William Larson

QE 1, 2, (and maybe 3, 4, 5) are nothing more than the Fed's own brand of "firewater" that will quench one's thirst for easy money, but will also guarantee a wallop of a hangover the next day.

Previous QE cash injections by the Fed have already increased the U.S. money supply by $2.3 trillion and, frankly, the results have been underwhelming. Since QE1 (2009) and QE2 (2010), unemployment has changed very little, especially when one considers the number of formerly employed people who have just given up trying to find work.

The GDP has hobbled along at 1% to 3% since QE2. Some projections show that this year the national debt will exceed the GDP.

In a free nation, markets should be free from external manipulation, and the same welfare mentality that seeks handouts from a federal government too willing to provide them should be abandoned.”

My toe-dipping lately has shown me that the risk/reward ratio is getting tighter again and warning of investors preparing to seek shelter as seen in aftermarket selling.

To contact me with suggestions or deserved praise:

Written by Gary

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