Are we finally at a ST top? Don't blindly follow Sell in May and go away

Well, it didn't take very long for bailout talks to surface after my previous post which caused the market to snap back immediately in anticipation only to give it back today. This type of volatility is what you see near market turning points. Apparently, we should have a bailout come Monday for Greece but I'm wondering what about the other PIIGS?

On Feb 5th the day the market hit bottom I referenced something that was said by the "Rev Shark", a trader who has a column on realmoney.com. Here's what he said...

"Assume the worst. The safest play here is to look for more downside".

I suggested comments like when the market is at extreme ST oversold conditions is indicative of what you see near the end of corrections. It just so happened the market bottomed that day!

Now, after fighting the market tooth and nail with repeated top calls the Rev Shark has come full circle. Here's what he said this morning

"What More Can I Say?

This trend seems unstoppable -- calling tops is a fool's game.

Well, I'm going to say the mirror opposite of what I said Feb 5th...these type of emotional comments in the face of such chronic overbought conditions are what you see near TOPS! But don't think for a second the "Rev Shark" has fully embraced the bull side. He is a fickle character and deep down inside like most trader types these days, he has little conviction on the bull side and feels more comfortable being bearish. All it will take is a 2-3% drop and these jokers will be running for the hills again. Actually, I just noticed his comment at the close was "tighten up on defense". You see what I mean! lol! The butt sniffers who play the long side are quick to run for the hills at the first hint of red.

So, given the warning signs of a top should you should go short here? It's always tempting to bet on a counter trend move after the market has made a strong run and I've warned repeatedly about doing so. Amateurs often do this and they often do so out of "revenge" for missing out on the move. I've seen many traders get destroyed doing this. Don't ever engage in such "revenge trading" of any sort. If you miss a move get over it and get over it fast. Don't bet the other way and don't "double down" on your next trade out of revenge. The market is not going away...there will always be another wave to ride.

I have made a personal vow to never top pick a bull market trend betting on a correction unless the setup is absolutely perfect and even then I wouldn't be betting much. How many times since April did it look like the market was ripe for a correction only for it to dip slightly and then head back up?...tons. I've learned the hard way many years ago that if you only trade/invest in the direction of the primary trend and resist betting on counter trend moves no matter how tempting, you will be a lot more successful and keep yourself out of trouble. So, if cautious in the ST I raise cash typically by eliminating/reducing positions that have not lived up to my expectations....this is what I've been doing. The worst that happens is that you miss out on same gains. Going with a short as a partial hedge is OK so long as you aren't over doing it.

Looking at the chart of the market it does indeed look toppy but if the market is true to form it's going to frustrate the hell out of as many people as possible first before going down in a sustainable way. Have we reached that point? I think we’re just about there if not there already. I still wouldn't rule out a head fake higher from here to create maximum frustration. Keep an eye on the NASDAQ. If it shows relative weakness on any bounce attempts it would be a warning sign of a head fake.

We are also going to start hearing a loud chorus of "Sell and May and go away". I don't buy into this shit nor am I a big fan of seasonality simply because it doesn't work on a consistent basis. Sure, you will hear about the statistics which show that from 1950 to present day the market hardly returns anything from May-November but that could be nothing more than a coincidence, more importantly, this theory has been rather inconsistent for the past 10 years or so. Selling in May and going away last year for example would have made you miss an 18% gain in the market. If you look at the previous bull market from 2003-2007 the average May-November return in the SPX was about 5.3%. Mind you this average is heavily influenced by 2003's May-November gain of 15% but the other years although returning a lot less weren't ever negative.

Selling and May and going away might actually turn out to be an OK idea this year not because of some magical force of seasonality but because we've had such a strong run in the market. But I don't think the market will be lower than current levels come November....I think it will be marginally higher with some sort of scare in the market either now or in the summer that sends it lower first. Sell in May and go away until July or August might turn out to be the best strategy. This is of course all guess work. For me, I follow the indicators and sentiment and largely ignore seasonality shit like this "sell in May and go away”. But I gotta say, one seasonality pattern that I find actually works in bull market conditions is the November to early January period.

Speaking of going away in May, I will be doing so with this blog...but not until November. The wife is really on my case for not getting things done around the house and in order for me to keep her happy and be able to do DD on companies I’m tracking I need to cut back on doing other things and blogging is one of them.