-- Published: Tuesday, 12 May 2015 | Print | Disqus
By Graham Summers
Stocks have officially entered their worst period of the year.
The old adage “sell in May and go away” does have some merit. According to the Ned Davis (NDR) database, had you invested $10,000 in the S&P 500 every May 1st starting in 1950 and sold October 31 of the same year, your initial position would only be worth $10,026 as of 2008. Put another way, by investing only from May through October, a $10,000 stake invested in 1950 would have only made $26 in 57 years.
In contrast, $10,000 invested in the S&P 500 on November 1st and sold April 30th over the same time period would have grown to $372,890. Out of 58 years, you would have had 45 positive and only 13 negative.
Put simply: the period from May to November has historically been a very weak one for stocks. All traders and trading models know this. It is not surprising that after failing to force stocks to breakout to the upside before May, we’re now seeing a sharp sell-off.
The S&P 500 is now at the lower trendline for the bearish rising wedge pattern that it has been carving out since November. This is critical support and we need to hold here otherwise 2050 comes into play very quickly.
The Fed’s FOMC meeting has come and gone, and the Fed has pretty much broadcast that any rate hikes that might be coming will do so later this year, i.e. not in June. This leaves verbal intervention to hold stocks up. Look for some Fed official to come forward with a blatantly dovish comment in the next few days.
The bigger issue concerns the fact that bond yields are rising across the board. The UK’s Gilts, US Treasuries, and German Bunds have all dropped sharply in the last month, pushing their yields higher.
Remember, the biggest issue for global Central Banks is containing the $100 trillion bond bubble. Most developed nations need rates to remain next to zero for their debt loads to be serviceable.
So if bond yields begin to rise, it can very quickly become a real mess. Indeed, we fully believe that when this happens we will have officially entered the second round of the Great Crisis that began in 2008.
Watch this situation closely!
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-- Published: Tuesday, 12 May 2015 | E-Mail | Print | Source: GoldSeek.com