There are many axioms and adages surrounding the stock market. Sayings like, “Sell in May and go away,” for example. They sound like they make sense as they roll off the tongue of someone who wants to sound knowledgeable (like a financial advisor).
But most of them are pure nonsense, and this one is a great example…
It goes back to what I was saying last week- how stock commentators like to give a reason for everything. Currently, as the market climbs in the face of various worries such as Ukraine (or insert your favorite worry), people pull out this old chestnut: “The stock market likes to climb a wall of worry.”
Sounds clever, doesn’t it? But it’s just nonsense. Why didn’t the stock market do that in 2008 or 2011 (or name your bad year)? The market just does what it does, based on the SENTIMENT of big institutions at any given time. Right now the market is rising not because it ‘likes to climb a wall of worry’, but because the downwards correction in the upwards trend was over, and that’s it.
You may think all these quaint sayings are harmless, but they’re not, and whenever you hear someone slop one of them out you should be on your guard. Some of them are true, but most are nonsense. It’s just part of the human condition to look for a reason for things, we are attracted to sound bites, and we love a good urban legend.
Let’s take a look at the current long term chart of the S+P 500 and see how you’d have fared for the last 3 years if you’d have followed the old adage, “Sell in May and go away,” meaning you’d have not been in the market come May 1st until the following September:
You’d have missed some great gains if you had done that!
And now let’s turn to the present. The market has pulled out of the recent correction and stands at a critical crossroads: if it can better the July 24 peak of 1,987 it will be very bullish. Not only because it bettered a previous peak and would be at an all time high, but because it will push it over a very important psychological number: 2,000. Don’t underestimate the power of what seems trivial like a round number. If SPX can hit 2,000 it could be very bullish indeed, and may well usher in the level of euphoria that pulls in the last of the bears.
The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com
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