Buying Exhaustion After Climatic Rise with Headwinds from Seasonal Factors

On May 1, 2017 by Michael Khoon

I posted the rhetorical question about whether the rally has legs on 26 April before the market opened. This was after a huge market surge since 17 April when I was cautiously optimistic that the market would see a bounce and that the market wasn’t breaking down.

As it turned out, the all-time high, overhead resistance at the various indices (e.g. S&P 500, mid-caps and small-caps) eventually put a stop to the forward progress since 17 April. The following S&P 500 price chart taken from the website best describes the market trends in the past three weeks,

S&P 500 (Oct 2016 - Apr 2017)

As one can see, the CMF (Chaikin Money Flow) indicator has since crossed below the zero line on April 26, indicating that price is running out of steam in the near term for consolidation. We should be aware that, from May through October, seasonal factors tend to work against the market rally, but we have no way of knowing how much the “Sell in May and go away” clich√© will influence price movement.

Nevertheless, the mid and long term picture of the market do favour the bulls albeit the short-term market indicators suggest caution against chasing high P/E stocks. The time to search for value is now.

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