Sunday Update: 50% C Fund / 50% G Fund Until Further Notice.
Happy Memorial Day Everyone! As government employees and Military Service Members, Memorial Day holds a special place in our hearts. If you’re fortunate enough to be home this weekend, please take some time to reflect. If you’re working or deployed, thank you for your service!
“Sell in May and go away” has been a long standing Wall Street adage. The idea is that traders close up shop and head out to the Hamptons to begin the summer vacation season. Historically, May tends to be a flat to down month for stocks with generally low volume (a relatively low number of shares changing hands). As you can see from the charts below, volume has certainly been below average throughout the month but, prices did climb last week, recouping losses from earlier in the month.
The short term outlook is still very much in question. While the C fund did pop thru the 50DMA, it did so on very light volume. This does not inspire confidence in the strength of the breakout. Even though volume is historically low in May, a true breakout needs significant volume. As we approach the prior all time high of 2135, we’ll see if volume increases and gets us up thru that ceiling.
The long term outlook is not much better, mostly because of the volume issue. In the C fund chart below, take a look at the strong volume on up weeks (Black Lines) in February when the C fund bounced off of its 200WMA. Every week was above the yellow average line. We need to see that kind of power behind the current rally attempt for it to drive us to new highs.
The S fund and I fund are not helping to clarify the market direction. The S fund did pop thru its 200WMA last week but, did it on extremely low volume. The I fund is in the worst technical position of the 3 stock funds. With its 50WMA below its 200WMA, the I fund has considerably more resistance to overcome before beginning a new up trend.
The bottom line is, the long term trend has not changed. I intend to stay 50%C fund / 50%G fund until the market gives a clear signal as to which direction is next.
Have a great weekend and please SHARE.