Sell In May And Go Away?

  • May 9, 2005
  • Peter Navarro

 

The Big Picture Investor: Sell in May and…..?

Navarro’s Broad Market Outlook: A Rally or Range Bound?

            With so many
reasons to be bearish — budget and trade deficits, fed rate hikes, incipient
inflation, war in Iraq, the end of the refi boom, etc. — it’s important to keep
asking one’s self what would it take to become bullish?   Two things really.  
The Fed has to back off from its inexorable rate hikes and, much more
importantly, oil prices have to go into a sustained decline back well below $40
a barrel.  Otherwise its hard to imagine a robust economy.  Or is it?

            Consider that with
a now much weaker dollar, hordes of foreigners are scooping up all sorts of
America assets.  Hey, they fly in from Asia and Europe on real estate shopping
tours and scoop up condos and houses in prime locations — from San Diego to
Miami.  Sure, the housing prices look high to us but if the euro or yen is way
up on the greenback, this stuff is still a bargain to foreign investors.

            So maybe the stock
market looks like a bargain too to foreigners, too, which would be one way of
getting a bull market going in the midst of domestic fiscal sloth and chaos. 
How else to account for a market moving in the opposite direction as the data
suggest.

          

Aloyan’s Technical Take: Follow the Bouncing Bull

            All three indices
finished in the green last week, with the YTD worst performer (the Nasdaq) being
the best performer of the three.  My sector breadth indicators turned positive,
with, 86% of the sectors in the green.  The beaten down Auto sector and Metals &
Mining led the broad sector bounce, along with Semiconductors, Internet, and
Biotech in the technology arena. 

            The weakness came
from the Real Estate sector with the sharp “pop” in interest rates for the week.
 The dollar was up for the week (closing at 84.62), keeping a close eye on the
84.75 level (2-3 closes over that, and I will look to go long).  

            The big action for
the week was in the bond market.  Bonds got hit, with interest rates rising on
the Ten Yr. to 4.27% on news of a possible re-issuance of the 30 Yr Treasury,
and the possibility of a floating Chinese Yuan.


My short-term trend indicators are turning up, but are not a buy
signal.  My breadth, momentum, and volume indicators
are short-term “neutral.”  My sentiment and economic/fundamental indicators
continue to support a defensive position. 


Bottom line:  Favor cash going into
this week, any continued bounce should begin to stall by the end of the week.  I
view this rally as an opportunity to add to short positions.

 

Hedging Your Bets With Matt Davio: Kerkorian and Chaos

What a spectacle last week:
Kerkorian bids 20% above the market for another 5% of GM.  The very next day S&P
downgrades GM and Ford bonds to junk. The intra-day rally in the SPOOs and RUSS
futures was ready to break important resistance levels — the round numbers 1170
on the SPOO and 600 on the RUSS — when out popped the GM downgrade. Surreal
times indeed.

Direction is a tough call at
this juncture. I tend to think we remain range bound for the S&P between 1138
and 1225 as that has been the range for over a year now. However, I still think
we need to go back and test that 1080 before a real next leg up can take place.

By the way, the Jobs numbers
came out Friday showing much stronger jobs growth than anyone expected. What’s
weird is that the jobs stocks like Monster MNST) and Manpower (MAN) sure don’t
reflect this growth (see chart below). 

One more interesting chart I
came across this week shows a pretty clear picture of the “sell in May and go
away” phenomenon.  The May-October flatline is hardly encouraging for the bulls.

 

 

Peter’s Portfolio: CPTC Meltdown

            Wow.  After being
assured that the company was doing just fine, thank you very much, by the
investor relations department, CPTC filed a blitzkrieg Chapter 11 last Thursday,
which drove the stock down to 40 cents.  Sure, it rallied back to 90 cents on
Friday after a press release explaining that this was just a defensive measure
that wouldn’t ding creditors or stock holders.  But it is useful to ask just
when are the promises of this company going to turn into contracts and hard
revenues.  Stay tuned….

David’s Pick: Cash.     


Peter Navarro is a business professor at the
University of California-Irvine (www.peternavarro.com). 
David W. Aloyan is a managing member of Platinum Capital Management.   Matt
Davio is a managing partner at the hedge fund, Infinium Partners.


For investment management services, contact David at

platinum@peternavarro.com.   If you are interested in hedge fund services,
contact Matt at

infinium@peternavarro.com.

For investment
management, analysis & insight, seminars, books, plus much more…visit our
websites at:  https://www.platinumcapitalmanagement.com
and

www.peternavarro.com


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