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Who will sell in May?

Posted by Dan on April 2, 2012

Markets came down a bit after a very strong close on Monday. Could this be the start of an overdue correction?
We have another week of lunar Red period to go, so we will find out soon.

Today we will have a look at a longer term chart for the Nasdaq (click for larger image):


The Nasdaq has been in a nicely rising trend channel since the 2008 financial crisis. The ceiling of this channel is currently around 3300, so potentially the rally could continue up to that point. Since November the market is in an even steeper up trend (labeled #1 in the chart), which would reach the 3300 level in April or May.
But I don’t think we will get there in a straight line. My Earl momentum indicator continues to show a weakening picture. Any decline would quickly take us down to trend line #2 in the chart, where support would be found around 2900.
Given the gains so far this year, the media will soon start dispatching “sell in May” headlines.
But if my analysis is correct, then “sell in April, and buy back in May(or June)” will be the better strategy.

Good luck, Danny

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