Sell in May?

“Sell in May and go away (buy back on St. Leger’s day)”

 

All in all, the market headlines look pretty good.  Payrolls are up, China's looking good (PMI), and there is merger and acquisitons (M&A) activity. 

 

Cam Hui, a noted investment manager, sounds an interesting note, based on the trite saying above that leads off this entry. 

 

Hui notes that major equity indices are approaching important resistance levels.  Let me give one example, that of the $SPX S&P 500 Large Cap Index. 

 

 

As you can see there is a retesting of the previous high and that previous high is called resistance.  Question is will the markets butt heads with resistance and break through, or will they fall back a little bloodied by the unbroken resistance.

 

I could put up several other charts that are showing various sector and secondary indicators are starting to roll over.  There is a distinct possibility that the Fed will stop its quantitative easing (QE2), some of the commodity prices are rolling over, the chip sector seeing support breakdown, and financials are rolling over on a relative basis.

 

For financial stability, one must look at the entire financial and economic scenario that is presented in which to work.  It may be time to take profits and begin to hedge for inflation. The worrisome divergences call for attention.  Do I think the markets will tank?  Probably not, precluding other natural and man-made disasters which no one can forecast.  However, caution is called for and if the markets do not consolidate, go away in May.  Limit equity exposure, hedge for inflation, have a nice summer!