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A New Month Brings Great Expectations
Author: Bob Lang (info)
Website: http://trade-mentor.com
Posted: June 4th, 2008 at 4:34 pm EST
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A second straight positive month for the markets, and who would have thought May would be capable of finishing up a winner? Remember the old saying, ’sell in May and go away’. Nonsense in 2008! Clearly such a mindset can be effective if the prior 4-6 months were positive…take profits off the table, stay out of the low volume days, etc. But, recall the Nov-Mar period this time around were as nasty as can be for the bulls. Now comes June, a typically slow period for the markets and volume…with the bulls trying to make it a ‘threepeat’. Well, they certainly have much going for them, but there remain some snags and traps…let’s take a look.
Spring is Not Only a Season
After the potential armageddon in March was averted thanks to Fed, markets have posted some robust numbers. Since the March 17 ’second’ lows, markets are up anywhere from 11-20% depending on what you’re looking at. Transports and small caps are up substantially more, too. A little strut in the step of buyers seems to have brought volatility down from a scary peak near 35%. So, do we sound an ‘all clear’? Well, not quite yet. We’re heading into a seasonally weak timeframe and with earnings coming up in a month we have to be ready for some negative surprises. Commodities have been the lynchpin for rallies this year, and that’s not likely to change anytime soon. If interest continues in this area as the market breaks out, a flood of sidelined funds will come to the fore and a market meltup can/will occur. However, without the support of institutional sponsorship, we’re probably right back into a range. At this time, I can’t recall a better looking chart primed and ready for a breakout than what we have right now!
Is Higher Oil All that Bad?
From a consumer perspective, it’s not appetizing. I’d say $5 a gallon gas is not far away, either. But the US consumer has digested higher gas prices for some time now, and unless there is a serious price shock…say $8 a gallon gas or higher…then I see the market absorbing the increase. Gasoline is such an inelastic item that there is not much that can be done in the short term. Longer term solutions are out there, but many years ahead. But getting back to oil and the higher price for a moment. Crude oil and oil service companies are a major part of the markets today. So their strength will likely balance any weakness found in other groups such as retail, consumer goods and restaurants. All the talk about a huge plunge in the markets with higher oil is just plain nonsense. The argument about oil being in a bubble is also irrelevant. Take a look at a chart of oil here and tell me what’s NOT bullish about it?
Summertime Blues or Summertime Rock n’ Roll?
If last year was an example then we could expect to see some big movement. Given the lower relative volatility, I don’t expect anything major, save for a ‘new’ disaster that hasn’t been considered yet. It seems as if the Fed has pushed off any major market decline as they converged onto the ‘dark side’, providing help to banks, brokers and lenders. Remember, June is a month where brokers will enter the confessional for their most recent quarter…and it could get really ugly again. Recent action in these names kinda portrays some bad reports, so that may have been discounted. One thing’s for certain…markets won’t rise above resistance without the financials…perhaps we’ll have clues later in the month as to what we can expect later in the summer into the fall.
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Bob Lang, Economics, Indexes, Investing, Stock Market, Trading
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