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Stocks have officially entered their worst period of the year.
The old adage “sell in May and go away” does have some merit. According to
the Ned Davis (NDR) database, had you invested $10,000 in the S&P 500
every May 1st starting in 1950 and sold October 31 of the same year, your
initial position would only be worth $10,026 as of 2008. Put another
way, by investing only from May through October, a $10,000 stake invested in
1950 would have only made $26 in 57 years.
In contrast, $10,000 invested in the S&P 500 on November 1st and sold
April 30th over the same time period would have grown to $372,890. Out of 58
years, you would have had 45 positive and only 13 negative.
Put simply: the period from May to November has historically been
a very weak one for stocks. All traders and trading models know this. It is
not surprising that after failing to force stocks to breakout to the upside
before May, we’re now seeing a sharp sell-off.
The S&P 500 is now at the lower trendline for the bearish rising wedge
pattern that it has been carving out since November. This is critical support
and we need to hold here otherwise 2050 comes into play very quickly.
The Fed’s FOMC meeting has come and gone, and the Fed has pretty much
broadcast that any rate hikes that might be coming will do so later this
year, i.e. not in June. This leaves verbal intervention to hold stocks up.
Look for some Fed official to come forward with a blatantly dovish comment in
the next few days.
The bigger issue concerns the fact that bond yields are rising across the
board. The UK’s Gilts, US Treasuries, and German Bunds have all dropped
sharply in the last month, pushing their yields higher.
Remember, the biggest issue for global Central Banks is containing the
$100 trillion bond bubble. Most developed nations need rates
to remain next to zero for their debt loads to be serviceable.
So if bond yields begin to rise, it can very quickly become a real mess.
Indeed, we fully believe that when this happens we will have officially
entered the second round of the Great Crisis that began in 2008.
Watch this situation closely!
If you’ve yet to take action to prepare for the second round of the
financial crisis, we offer a FREE investment report Financial Crisis
"Round Two" Survival Guide that outlines easy, simple to
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market downturn, but actually produce profits.
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