I’ve been listening for it. But, I haven’t yet heard anyone utter the phrase, “Sell in May and go away.”
The period between May 1 and October 31 represents what is historically the worst six months of the year for the stock market. Stocks don’t always fall during that time, of course. But any gains are far less than what are typically achieved during the best six months – November 1 through April 30.
That’s why, as we approach the end of April, we usually hear Wall Street’s choir singing “Sell in May and go away.” But, the choir appears to be sitting it out this year. So, it’s up to me – the lonely voice of the Market Minute – to grab the microphone and perform a solo.
SELL IN MAY!
The stock market rally over the past six weeks has been phenomenal. At the high of the day yesterday (2920), the S&P 500 had recovered nearly 60% of February/March decline. It was perhaps the strongest, fastest bear market bounce we’ve ever seen.
But, it’s still just a bear market bounce. And, like all good bear market bounces, it served its purpose to punish short-sellers who got too aggressive, and to coax bullish traders back into the market.
Now, as we head into the seasonally weak period of the worst six months of the year, it looks like the perfect setup for the bear to hit the market with another swipe of its paw. And when that happens, we may enter the third phase of a bear market – where stocks fall even harder and take out the previous low – that I’ve been warning about.
Take a look at this updated, long-term monthly chart of the S&P 500 plotted along with its 20-month exponential moving average (EMA)…
As you can see, the S&P has rallied all the way back up to “kiss” its 20-month EMA from below. This is exactly what we were expecting to happen when we first looked at this chart earlier this month.
We noted how bear market bounces in the early stages of the 2001 and 2008 bear markets brought the S&P 500 back up to “kiss” its 20-month EMA from below. And, a similar move this time around would push the index up to 2880 or so.
We also wrote…
That’s the area at which traders should look to exit long positions and start adding exposure to the short side. Because what follows is a brutal decline that takes out the “panic stage” low, and ultimately wipes out about half of the value of the stock market.
In other words, as we head towards the end of April… sing it with me people…
Sell in May and go away.
Best regards and good trading,
Jeff Clark
P.S. As we head into the third phase of the bear market, this may be new to some traders… and it can be a hard and even scary adjustment.
For this reason, I’ve started doing a weekly live-streamed Crash Course, where I give my subscribers a real-time, over-the-shoulder view of what moves I’m anticipating for that day, and the techniques that I’ll be maneuvering throughout the week.
And, all of my paid subscribers can access the first three replays right here.
But for the remaining seven sessions, Crash Course will only be available for members of my elite membership tier, Jeff Clark Alliance. Alliance comes with all of my advisories, and a few extra features – like a quarterly Q+A, this Crash Course, and more – exclusively to Alliance members. Click here to learn more.
Reader Mailbag
Today in the mailbag, Jeff Clark Trader subscribers Matthew and William share how they made a profit from Jeff’s recent recommendations…
Hi Jeff, thanks for the XLK put trade. The market had adjusted a little bit, so I bought a similar strike price from your recommendation. I traded out the same day you recommended to sell and locked in a 46% profit. I’m looking forward to your next trade.
– Matthew
Hi Jeff, I wanted to thank you for the great recommendations recently. I was able to post a 100% plus
profit on the XLF calls, and about a 55% profit on the XLK trade. Great recommendations!At the same time, I made a couple of trades of my own that were based on your recommendations like the BAC May 15 $22 calls, for a 60% profit. And I made a speculative call trade on XLK on Tuesday after selling your put recommendation, and sold it the next day for about a 50% profit!
Thanks again. Keep up the great work! I really enjoy learning from your strategies and making my own trades as well as taking your recommendations. I was wondering what your thoughts are on GDX. It seems like a good time to start a small short position, but it also looks like it could keep rallying up. Thanks again!
– William
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].