May 18 Daily Market Assessment

Sell in May and Go Away

Well, we had our second distribution day (higher volume, negative A/D) earlier this week, and now we're poised for a definite downturn, albeit a short one. Thursday saw the markets using weak volume to get back to even after stepping down sharply in mid-day. The DOW and the NASDAQ are over-bought by every measure, and the number of blue chips putting in new highs has been in steady decline all week. The NASDAQ, in particular, has been hit with heavy selling.

Furthermore, there are no more good earnings or economic news reports in the offing, and option expiration always brings sellers back into the equities market. I don't know if it will happen today (likely) or next week, but it's time to "Sell in May and Go Away". I believe that we are at or very near our 5-year highs in the major indices, and that it probably will be late September before we move past them again, since August earnings in key industries (retail, consumer goods, housing, healthcare) will be lackluster.

All that said, I see some selective opportunities. I plan to take long positions in steel and oil, and to begin building positions in a few key stocks that have made retracements to their 50-day moving averages, or just below: PCLN, VSEA, BLUD. Also, bear put spreads are in order for AAPL and SBUX.

Summary: Short term bearish, Long term bullish.