“Sell in may and go away” is upon us.
Like it or not the summer slupm starting in early summer has a long record of correction. This summer pull back washes through in the end and we have got used to an autumn and winter bull to put a smile on our faces.
Whether this perceived phenomenon is a statistical fluke or driven by real market dynamics is unclear. It is always possible for a coin toss to come up heads for a long run of flips but the summer market slump seems to have more than random probability behind it.
We have all had a great run of profits, at least we should have with the market a bullishly rampant as you could wish or hope for last year. You don’t have to be a scared sort to look at the gains and imagine bad things a likely to follow.
In fact you have to be insanely bullish to not expect to be at least rough up a little this summer.
As we look at the technical all the pieces are there for something nasty to happen. It doesn’t help that a number of geo political matters, especially the Ukraine present further uncertainty and potential triggers.
So lets take a look. This is the Nasdaq.
Up until the new year Nasdaq has been rallying in a clear consistant channel. Its as straight a line as any market can give you. This happened at the beginning of 2012. There was little or no real uncertain in these moves. In 2012 it corrected. This year the market is panning out in a very similar way indeed.
So lets go to specifics.
Lets look at Apple. It had a great quarter last week. It jumped 8% after hours. It is the strongest of the Nasdaq superstars.
Short of a release of information on the iphone 6 a May correction is going to hit Apple hard. Apple remains a big chunk of the Nasdaq and a market sell over will drag it down. If you are an Apple Zealot this will be a great time to buy. However Apple remains no longer a rocket to stock market heaven, it is firmly in orbit and for all its holds hopefully comfortably there. It remains the case it will take a miracle or at least a long long time for apple to double from its current price, stock splits taken into account of course.
Facebook look even less comfortable.
Facebook like the market has had a great run even while its thrown eye-popping huge amounts of money at Whatsapp which I can’t be alone in thinking challenges ideas about money in the same way land prices did in Tokyo before the Japanese 80s property crash. You could say that acquisition implicitly underlines Facebook stock is extremely overpriced but the Nasdaq glory stocks make up their own rules as every stock market era vunderstock always does.
Tesla has the sort of chart that makes me have PTSD flash backs to 2000. Does this chart pattern ever end well? You can do all the basic fundamental analysis you like, its stock price doesn’t make sense. You can get yourself into deep narrative and start to see the outlines of an argument that might just kind of fuzzily make sense but to me its one of those magic-eye pictures I can never quite get to work.
You don’t need to be a chart guru to see how fragile Tesla’s chart is. Elon Musk is without doubt a genius; but I can’t be hypnotised into believing his niche car company is worth three times Fiat the owners of Ferrari and much, much more. A May correction will not be kind to this stock.
Finally the is @Twitter. #slumpedalready
Twitter doesn’t have much history, but this is the story so far. Up like a rocket and down like a rock. In a bull market you’d expect it to bounce right of the $40 but with a correction perhaps only days away the $40 looks vulnerable. If twitter broke down through $40 it wouldn’t likely spark the sort of bearish move that would provide the environment for some dip buying. It is of course naturally massively overvalued but that’s just the way the Nasdaq operates. Sell in May is just a disruption so it provides a great time to buy these “wonder” stocks when the summer throws a bucket of cold water over the festivities.
However don’t be in a hurry. If the summer correction hits, don’t rush in, let the correction play out and establish a bottom as the conditions are right for the summer slump to be one to remember.
Good luck to everyone out there, keep your leverage low.