The Search for a Market Top Continues
The Dow Industrials, Transports and Utilities, along with the Russell 2000 continued on their record runs. The S&P is within earshot of its all-time high. Then of course we mustn't forget the Nasdaq Composite, which is a long way away from its bubble peak. I hate sounding like a broken record, but the stock market is on an unbelievable run which has surprised even the staunchest of the Bulls (me included). The Bears may finally get some relief in the month of May, as it has traditionally kicked-off the seasonally weakest seven months of the year. The Wall Street saw "Sell in May and Go Away" references data that was compiled going back to 1950 in which investors that stayed out of the market between May 1 thru October 31 every year garnered returns that were appreciably greater than those that practiced the traditional "Buy and Hold" method. Some readers may recall last year's big sell-off that began on the fifth of May and did not run its course until the middle of July. Over the past 25 years the months of September and October have been times where the markets have experienced some harrowing downturns; the 87 crash, the Asia contagion mini-crash of 98 and of course 9/11 to cite a few examples. Will this seasonal tendency derail the market's current rally? I don't believe that to be the case yet. It could serve to stall the rally for now. However, I do think we could go higher in the coming months. For the most part I don't base my trading decisions on seasonal patterns. They serve more as a backdrop to gauge whether a change in the current market environment is afoot. This will come from some form of technical deterioration. The fact that the ER2 (e-mini Russell 2000) did manage to print a nominal new high, notwithstanding, it has been badly lagging the rest of the indices for about a month now. Consequently, when the Dow and S&P had minor pullbacks on Monday of this week, the ER2 suffered through a much more dramatic reaction (28 points from peak to trough) in that same time frame. The buyers finally found a "value area" at the 38.20% Fibonacci retracement (see chart below.) Another noteworthy point on this chart is the fact that a Hammer Candlestick was created for the close of Monday's session. This particular Candlestick is generally perceived as being very Bullish. | 
NEW! 
