High stock prices combined with low levels of total trading volume is NOT a good recipe for a continuation of a stock market rally. This kind of current action should raise a few eyebrows.
Additionally, on recent days when the daily trading volume actually increased versus the previous day the market has fallen more than a minimal amount. That type of action is defined as “Distribution,” or professional selling, by Investor’s Business Daily.
Make no mistake: The long term trend is still up. What has changed is that under the surface the pros are stealthy becoming net sellers. At least at the present time and in small doses, so far.
Our Current Market Outlook has been changed to “Uptrend Under Pressure” with a yellow light. The TPM “Core Four” internal indicators show 2 green, 1 yellow and 1 red (see top of page). The net result is a yellow light.
“Back in the day,” when stock market old adages and clichés seemed to work more times than they didn’t, a very popular rhyme was developed and embraced by investors. That rhyme simply stated “Sell in May and go away.”
According to Stock Trader’s Almanac, “After decades of historical research, we discovered that most market gains occur during the months November through April. Investing in the Dow Jones Industrial Average between November 1st and April 30th each year and then switching into fixed income for the other six months has produced reliable returns with reduced risk since 1950.”
There is much more to it than that, of course. And there are many theories as to why it often occurs. Our own research has found that it does not work every year. No pattern does.
Will it work this year? We don’t know, but the stage is set. What we do know is that the stock market internals are suggesting we are in an up-trending market whose gas tank may be running low. Or, to be more hip, maybe we should say its battery charge is getting low. 🙂
Keep your eyes on the CBOE Volatility Index (VIX), ideally that it would stay under a reading of 21. Also, stay focused on the slew of earnings reports ramping up this week and continuing through May. It’s not the results that matter as much as it is the markets response to the numbers. Great EPS releases that are met with harsh sell-offs is poor action and should be taken as a warning.
What should investors do now? Get outside and enjoy some fresh air…without a mask! Continue monitoring the US 10 year note rate. Keep watching the daily NYSE 52-week new-lows for unwelcome increases if the indexes continue to reach new highs.
Have a Triumphant day! ®
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.
©2021 Triumphant Portfolio Management, LLC.