Sell in May and go away, a slogan referred to when traders and investors go flat (hold no positions) over the summer. If traders and investors took part in the sell in May and go away theory this year, many would probably have some catching up to do as they are lagging the indexes.
I traded the failed head and shoulders pattern in July, but quickly reversed the trade after breaking up through and holding the neckline. Too many people were shorting the head and shoulders pattern in July and when a few people stepped in to buy; those who were shorting got stopped out. With September around the corner, is it time to sell?
As the market seems to keep going higher, some stocks are getting ahead of the underlying fundamentals. So, why have we not seen a pullback? Whenever the market looks like it wants to pull back, fund managers, retail investors, and others are piling in with hopes of catching up to the indexes. Afraid they will miss the next move higher. The current market just doesn’t want to sell.
Looking at the chart below, the S&P 500 volume is thinning out while making new highs. Recent volume has been concentrated in just a few companies.
Although the S&P 500 is in a nice upward trend, many others and I think there will be a correction. The $64,000 question is when and how much? One thing I learned quickly in trading is that if most investors and traders suspect it, then most likely it will fail. How many times did investors and traders call a bottom on the way down to the March lows? I think the head and shoulders pattern failed because it was a one sided trade…everyone was short, including myself.
While I think a pullback is near, I remain bearishly long. My trading portfolio is currently flat while my income portfolio is loaded with preferred stocks and junk bonds. However, as the markets continue to rise, so do my stop loss orders. Maybe, September will show us what is next to come.
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