August 20, 2017

“Sell in May and Go Away” lives up to the historical billing so far. The S&P (SPY) up a paltry 0.2% in May.

If you are a loyal reader you know that I have stated repeatedly over the last week or so that a short-term decline was imminent. All of the signs were there. First, the Dow and S&P had reached an overbought state going into a historically weak seasonal period: post options expiration.

The bulls gave a valiant effort over the last three trading days, but overhead resistance coupled with the aforementioned indicators proved to be too much this time around. For the first time in what seems like months the market has actually struggled with resistance. As I stated last week, intermediate-term bearish indicators are rearing their ugly heads for the first time in months. Could today’s sharp decline be the beginning of one of the most anticipated, and eagerly awaited corrections that I have witnessed in quite some time.

The decline today, actually helped our SPX Short Iron Condor strategy as it moved the underlying SPX closer to our mid-point of 1510. With all of short to intermediate-term bearish signs in place I decided to alter my range to lean towards the bearish camp. As it stands, with the SPX at 1507 at the close, our chosen 140 point range from 1580-1440 looks promising especially considering the market is off Monday. Gotta love time decay!

I still expect to see a trading range with slight expansion as the market heads into the summer doldrums.

) closed the day at $151.06, up $.31 or .2% since the old Wall Street adage “sell in May and go away” began.

As you can see from the paltry gains above the S&P has found a comfortable trading range over the past few weeks. I would like to go back to some statistics that I have referenced several times over the last few weeks.

 I looked at the historical average return of the S&P on a monthly basis over the last 60 years to see if actually backed up typical range-bound summer months also known as the “summer doldrums”.

  • Jan. – 1.4%
  • Feb. – (-0.2%)
  • Mar. – 1.0%
  • Apr. – 1.3%
  • May – .0.3%
  • Jun. – 0.2%
  • Jul. – 0.9%
  • Aug. – 0.0%
  • S&P. – (-0.6%)
  • Oct. – 0.9%
  • Nov. – 1.8%
  • Dec. – 1.7%
  • Again, the Stock Trader’s Almanac states that a $10,000 investment compounded to $544,323 during the November-April period over the last 56 years compared to a $272 loss for May-October. I think that sums up the significance of the historical period known as the “Summer Doldrums”.

    Keep this in mind as we move into the summer months. Corrections happen. Flat periods happen. The market can’t continue to advance in this manner without corrections and lengthy consolidation periods. This is the nature of the market. Consider learning alternative investment strategies as a way to diversify your current portfolio so that you are better equipped in any market environment, bullish bearish or neutral. Over the next few weeks I will mention some of my favorite strategy-related books that will hopefully assist you on your journey to becoming a more knowledgeable and in turn, confident investor.

    Overbought/Oversold levels for May 24, 2007

    • SPY –  38.4 (neutral)
    • DIA – 47.8 (neutral)
    • IWM – 45.6 (neutral)
    • QQQQ – 34.0 (neutral)
    • GLD –  28.7 (oversold)
    • OIH – 45.1 (neutral)

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