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Are Short-Term Market Patterns Still In Charge?

  • Written by Syndicated Publisher No Comments Comments
    May 6, 2014

    The market has still gone nowhere in 2014.

    Year to date: Dow: unchgd    S&P 500: + 2.3%   Nasdaq: – 1.5%  Russell 2000: – 3.1%

    Okay, I know. CNBC is excited because the Dow closed at a new record high yesterday, and so is up for the year. It closed last year at 16,576, and closed yesterday 4 points (.002%) higher at 16,580. Unchanged seems to be the correct assessment at this point anyway.

    Since February it has been trading in a narrow trading band.


    And, as I noted through April, the volatility within that narrow trading band pretty much followed the market’s short-term historical patterns; the ‘monthly strength period’, end-of-quarter ‘window-dressing’, triple digit Dow reaction to monthly jobs report, then the typical reversal of that reaction over subsequent days. Then there was the usually negative week before the options expirations week, followed by the usually positive options expirations week, and then the often negative week after the expirations week.

    At some point the market will break out of the narrow trading band in one direction or the other.

    But if the short-term patterns are to continue, we are in the next pattern, which is the ‘monthly strength period’ consisting of the last two trading days of each month, and the first four trading days of the following month. It was due to begin Tuesday and to run through next Tuesday. If it does take place, it could break the Dow and S&P 500 more obviously out of the trading band to the upside.

    But then there will be the influence of tomorrow morning’s MLS employment report for April, and whether it comes in with a typical surprise in one direction or the other. Last month the surprise was to the downside and the Dow dropped triple-digits over the next couple of days (before bouncing back over subsequent days).

    The ADP jobs report on Wednesday, showing 220,000 new jobs created in the private sector in April, was encouraging for tomorrow’s MLS report.

    But this morning’s report that new weekly unemployment claims were up an unexpected 14,000 last week, to a nine-week high, was not so encouraging. It followed an unexpected jump of 25,000 claims the week before, which analysts expected was an aberration due to the Good Friday Easter holiday, a jump in claims that would be be reversed this week. Instead there was another sizable jump.

    However, according to the pre-open indicators the market is not worried by the report.

    Speaking of the market shrugging off reports, I was surprised at the market’s lack of reaction yesterday to the report that 1st quarter GDP growth unexpectedly plunged to just 0.1% from 2.6% in the 4th quarter and 3.5% in the 3rd quarter. That’s a sharp six-month downtrend to just 0.1% above a recessionary negative number. (The official definition of a recession is two straight quarters of negative growth). But neither the market nor analysts seem to think it’s important.

    Gold is looking precarious.

    Gold, which bottomed precisely at year-end as the stock market reached its record highs, had been rallying off a rising double bottom since, and had broken out above its long-time important 30-week m.a.

    But it sold off in April, and has been struggling recently to remain above the m.a., which is currently at $1,287 an ounce.


    Gold’s action in the early going this morning, down $16 an ounce at $1,279 an ounce is not looking good. It has begun the day below the m.a. a few times in recent weeks and bounced back by the close, but it doesn’t look good.

    Sell in May and Go away?

    It’s that time of year when the market’s long-proven seasonality comes under widespread attack.

    It’s interesting how the ‘buy & hold’ advocates climb on seasonality’s bandwagon in the fall with exciting reminders that the market is about to enter its proven favorable season, a reason to pile into stocks. But when the other side of seasonality arrives in the spring, suddenly seasonality is a “foolish story that just won’t go away and needs to be ignored.” as one columnist wrote yesterday, and others have been echoing all week.

    By the way, as we remind you each year, neither the Sell in May (May 1) and Go Away (until November 1) strategy, or our STS, are based on the market beginning a correction exactly on May 1 (or on the exit signal of STS).

    Both proven strategies only say that a significant correction is likely some time between the exit date in the spring and the re-entry date in the fall, and over the long-term it pays handsomely to be out of the market during its unfavorable seasons. As often as not the low takes place in the September to November time-frame.

    But if the market does not immediately break down over the next few weeks we can expect the usual litany of “Sell in May fails again”.

    For the truth about Sell in May see the current sample issue of our newsletter by clicking here:http://streetsmartreport.com/tosample.html

    To read my weekend newspaper column click here:  Is Housing Ringing the Stock Market’s Bell Again-

    Subscribers to Street Smart Report:

    There is an in-depth Markets Update (Stock market, gold, bonds) from late yesterday in your secure area of the Street Smart Report website .

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 


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