Sell in May and Go Away?
Now that the SPX has struck a new all-time high, market participants assume that the Fed has successfully pulled another rabbit from the hat….
The rabbit is the rally, the hat was the December ten-gallon meltdown.
With the Powell Pivot in December, market participants are apparently taking to heart the idea that the Fed will do “whatever it takes” to reflate the markets/economy.
However, there are serious signs of excess as U.S. stocks have outperformed the rest of the world more than at any time this century…at least.
There are flagrant divergences too.
While the NAZ and SPX are probed just above their September all-time highs, the FAANNG’s remain below
Their prior peaks. This morning GOOG is putting an exclamation point on this divergence.
FB peaked at 218 in July 2018. Currently it trades at 195.
AMZN peaked at 2050 in September. Presently it is at 1928.
AAPL topped at 233 in October. Today it stands at 204.
NFLX struck 423 in June. It trades at 371 today.
NVDA hit an all-time high of 292 in October. On Monday it closed at 179.
At the same time, a contingent of growth glamours have broken out recently in tandem with IPO’s in a conga line to nirvana.
In the last week or so, many original leaders from January have broken out from second stage flat bases.
Names on our Hit & Run focus list that members have taken long in the last week include COUP, MIME, MDB, CYBR and OKTA.
On Monday, we took ETSY long on an audible on the private Hit & Run twitter feed.
As to new issues, last week we took SWAV and JMIA long and have locked in nice gains.
We also took AXSM long last week and maintain half the position presently.
On Monday we called an audible long for a day trade in IPO PINS
as it pulled back toward 32 looking for 34 before the bell.
I came to the 34 projection by route of something called the Square of 9 Chart which was one of legendary trader W.D. Gann’s tools that allowed him to forecast highs and lows to the dime.
The Square of 9 is simply a spiral number grid that allows one to measure price in a logarithmic natural progression rather than in a linear fashion.
34 is 180 degrees up or opposite the 23 low in PINS.
Given Monday’s momentum in the name, my gut was PINS would be magnetized to 34 quickly.
Notice the upper rail of the 10 min trend channel on the above chart.
Interestingly, an hourly PINS shows that 34 ties to the top of an hourly trend channel as well.
Note that every turn down in the hourlies since PINS broke out of a micro base on April 25 defined a low.
The same was true for our buy point late Monday.
With this initial objective being satisfied, if PINS ‘respects’ the price harmonics of the Square of 9, it would not be surprising to see it pull back to just under 32.
If that does not act as support a retrace to the lower trend channel and 30 could be on the table.
It is also interesting that PINS struck a 50% advance in 7 days satisfying the 50% Rule.
A sustained push over 34 implies higher but I would be wary of a possible up opening reversal this morning.
Conclusion. As depicted in several charts shown in this space this month the is a big picture Megaphone projection to just north of 3000 SPX.
Yesterday we showed the symmetry of a failed Head & Shoulders projection to the 3160 region IF we get momentum above 3000.
That said, the market is stretched here and cycles and sentiment suggest a shakeout prior to a possible melt0up.
It has been 4 months since we’ve seen a 3 to 5% correction and typically those show up every 3 months so I can’t help but wonder if ‘sell in May’ comes into play.
In this century ‘sell in May’ has seen serious reactions 3 times and meaningful reactions another 3 times.
3 times the market made no progress to speak of.
So, there is a 50/50 bet that a shakeout of some nature occurs.
Be that as it may, until we see a sustained break of 2935 and then 2917 SPX, the line of resistance remains higher with the low 3000 region as a primary target.
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?
