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May 3, 2014 – Weekend Market Comment

May 3, 2014 – Markets sold off end day on Friday as none of the pros wanted to see what the market would bring come Monday. The better than expected April Jobs report still wasn't enough to keep the markets positive, as Ukraine unrest intensified heading into the weekend. May 1 was an up day as the first day of the month often is but was followed by weakness as the pros consider the possibility of a May Sell off. I am going to show some charts and to prevent confusion I will tell you up front what it says. In the short run it looks like the markets are gaining confidence and we are poised to bounce up however when we look at the big picture we are  well in to the 5th year of this recovery and the markets will not be so strong or one sided going forward. I have seen this movie before and it often starts May with a strong uptrend followed by a sell off mid month or at option expiration about the 20th of the month.

Lets start with some of the most positive short term indicators. First our green arrow graph is just issued a buy signal.

As often accompanies a green arrow upturn the market is moving from slow moving stable stocks in to more risk on equities.

The VIX or fear gauge is looking more positive.

On the NYSE the number of stocks above there 50-day moving average is improving, but its kind of anemic.

The NYSE high low market force looks strong but the version of this graph for other markets like the NASDAQ is not so strong.

Now the Bad News
Well that's all very nice but the broader picture is not as rosy. First off some times it helps to zoom way out and see where you are in the bigger picture. Lets look at a MACD (blue histogram on top) over the last seven years of the S & P 500 stocks. As you can see we have had a nice strong run but that time is probably done as the market consolidates and perhaps even sells off.

Also when we look at the primary sell indicator we get a clue what the professional money doing with the put call ratio and it is not looking aggressive.

The NASDAQ is often the canary in the coal mine. The summation index look downright morbid as biotech and internet stocks languish and with the exception of Apple the whole tech market is a mess.

The market seldom stays strong when the big guys are buying bonds, as you can see even though the market bounced off the bottom there has been no corresponding let up in the bond market.

How to Play This
Well you have two options here, you can take the view point the sell in May and the Presidential cycles don't always work and this is a great buying opportunity. In which case you buy aggressive choices like biotechs and internet stocks.
Lumber prices are rising you might consider CANFOR

Wana take a big chance?
things look great long term for KYTH currently caught in a biotech sell off\

or if you want a great internet stock look at Tripadvisor currently in a small bounce up.

Or you can follow my lead and never play aggressively in May.

Look at DVYE a broad dividend fund

Or Canadian pipelines are always a safe bet here is Enbridge, other choices are Pembina pipeline and IPL.