SELL IN MAY AND GO AWAY

This is the old Wall Street saying. Very often stocks will move sideways to down during May...sometimes through the entire summer. We are sitting (and holding) at some key resistance which we want to watch closely...about 880 on the S&P 500 and around 8350 on the DOW. My prediction is that we will either move up, down, or sideways over the next few weeks. In other words, we are at an area in the markets where it is difficult to read the future probable movement. As you have read in previous blog postings, I have tried to do shorten up my trading time frame. I have also looked to trade stocks in clear trends. This is an area where option spreads can work quite well. The VIX is showing what appears to be a bullish ABC pattern. If the VIX does move up, the market will most likely sell off. If the VIX breaks this support (around 33.50), we could get another strong move up. Not just because the VIX would break support, but also that the S&P 500 and DOW would most likely break above their resistance as well. If the market does move sideways for a while, you will need to practice some patience. When the market is trending strongly, there are usually a lot of stocks making big moves. When the market is trending sideways, we might only have a small fraction of stocks making big moves. So for an example...if there are 100 stocks making big $5 moves in a strong trending market, there might only be 10 stocks making $5 moves in a sideways trending market. Since we don't know which stocks will make those $5 moves, the probabilities become much lower (in a sideways market) that we will catch one of those stocks. This is why is is a good idea to lower expectations, reduce risk, or even go to cash when the markets begin to move sideways. I've see a lot of money given back to the market when students over trade during a sideways trend.