Sell in May and go away? Bear-o-meter says “yes”!

Before I get to the new Bear-o-meter reading, I thought I’d post an interesting chart created by Jason Castelli, Technical Analyst with Raymond James. For the record, Jason notes that he didn’t re-capitalize the index (a feat that would be cumbersome, and likely inaccurate even if attempted). As Jason notes:

While the chart is not a perfect representation (based on price rather than market cap weighted) it does speak to how the breadth of the rally has been narrowing, which is something I highlighted in prior emails. The S&P 500 price level less AMZN in the top panel looks considerably different that the actual S&P 500 in the lower. This chart is for illustration purposes as it places a heavier importance on AMZN than actually exists in the broader market.

I post this chart because it ties into some of the observations I made when running through the Bear-o-meter compilation. Market breadth, or participation, is one of those factors. I’ll be visiting the subject of breath below. Jason’s re-worked SPX chart shows us that broad participation in this rally looks weak if you remove AMZN, even if the chart isn’t entirely accurate.

As a refresher (you don’t need to read this if you follow this blog regularly):

15 Comments

  • Hi Keith,

    Thanks for all the info you provide. The market is being elevated by a few mega-cap tech names and the IBB. So I like that your BOM (bear o meter) is giving your a reading of 1. So how much of a decline do you see coming if things do indeed roll over?

    Thanks,

    Parm

    Reply
    • Parm–it seems that the SPX is struggling around the 2900 point – it may hang out here or even get to the 200 day SMA before making a negative move. Downside? Hard to call, but perhaps 2600-2700 zone makes sense.
      If we got a second COVID breakout after “opening up the economy again”–we may see a poop-storm. But that is just me thinking out loud. For now, the most likely situation is a 10% pullback + or – a bit.

      Reply
  • Thank you Keith for keeping us informed under these difficult times .
    From your comments above , I assume it’s time to sell SHOP?
    Stay well and I will try to join your webinar today . I met you in Orlando in February.
    Carlo Rea

    Reply
    • Hi Carlo
      I may be back to do the Orlando show again this winter. Hope to see you there!
      I normally don’t like to talk individual stocks on this blog–lest I get peppered with everyone’s questions regarding their own individual stocks. SHOP is a big one though, so I’ll answer in the spirit of it being a well followed position that others who read this might hold.
      We like SHOP–but yes, its way overbought. It will pull back. But the overall technical breakout is positive.

      Reply
  • Seems like indicators like rsi and stochastics are not near the overbought levels. Seems like market is in a middle of the road indecision time waiting for the opening of the economy

    Reply
  • Keith: Thanks so much for your insights, and help. Do I remember a few blogs ago, that you were selling your gold positions due to being overbought? Did you do it? I have held on to my gold producers for now, and they are again, going gangbusters. Is it time to sell into this?

    Reply
    • Hi Tom
      Yes we sold (doh!). It just goes to show you that overbought can get more so. I do think the sector is getting very ahead of itsef – was just doing the MneyShow talk and somebody asked me about the sector–I pointed out the overbought momentum signals.

      Reply
  • I’d like your confirmation that should the bear-o-meter prove true that the risk is higher than the reward today, and if the market corrects further over the period that companies like Amazon in the US and the TSX leader in the north being Shopify might not be able to buck the market trend and will also fall from their high. I note that in the April/March correction that Amzn fell 24% before going back to new highs. Shopify dropped ~32%. My point being even these two market beheamoths expectedly should correct somewhat if the markets correct.
    Thanks

    Reply
    • Well, lets assume the market does pull back in the next couple of months (I do make that assumption–but acknowledge that nobody can make too many prognostications with huge confidence these days)
      If that happens, there is always the “all ships rise and fall with the tide” idea
      My thoughts are that a 10% pullback (which is what I imagine might make sense)- you might still see the defensive stuff have less downside –like AMZN, WMT, utilities, some staples, etc – although overbought stocks like SHOP might be hurt more.

      Reply
  • Thanks for the link to the webinar today. Your presentation was excellent!

    Reply
    • you liked it Arlyne–we will try another one in a couple of weeks – although not a MoneyShow presentation–might give me a bit more time to field questions.

      Reply
  • There are a ton of stocks with that same formation as Pembina pipelines just waiting to break higher. Ie DIS Disney. ENb, Enbridge. Could be some nice trades in the next few weeks. They like you say likely won’t take out pre covid highs but no need to for some nice gains

    Reply
    • Yes, we have been “value” picking lately. Small consolidations, with a minor breakout might indicate upside.

      Reply
  • Two questions-

    How will perpetual preferreds do if there are negative interest rates?

    and

    LifeCos are suffering because of low interest rates. Why are they happy paying 4.5-5.0% on $25 par
    Hi Keith- Any theory on this?

    Lifecos are suffering because of low interest rates.

    Why do lifecos like MFC SLF GWO and POW pay 4.5%-5.0 on the $25 par value to keep their perpetual preferred shares alive? They could retire these shares if they wanted to.

    They are yielding 6% on the current market price. Again, if they legally can, why would they not buy up these shares at market value?

    Thanks
    Randy

    Reply
    • Perpetuals at a fixed dividend will theoretically benefit from falling rates (assuming the companies cashflow can maintain the dividend), but any floating pref’s will suffer in negative rates.
      Re: why they keep these pref’s out there–some will have redemption clauses, but some may not. I guess you’d have to read the offering papers to know – we don’t hold any pref’s at this time. Craig (who does the fundamental analysis here at VT, and does most of the decisions on our Income Platform) feels they are risky right now. That’s about all I can offer to your questions.

      Reply

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