It's that time of year again. For seasoned hedge fund managers this is the time of year when money managers close out their long positions and either move to cash bonds or go short the market. The 1st of May heralds the start of the summer holiday season where very little happens in the stock market.
Of course like always the average stock market investor with a 401K or a Bank managed fund gets amnesia and forgets the sell in May and go away adage of the market and gets caught long the market while the Bank hedges their clients risk positions and wins once more with the client bearing all the risk and the losses.
Last year the crash in May was avoided as Osama Bin Laden was "caught" on the highest risk weekend for the stock market the May bank holiday weekend creating a newly invigorated patriotism in America and of course confidence in the stock markets. The crash was delayed until August however even Osama's capture couldn't keep the stock market from falling 10% through to the middle of June.
See chart of the S&P below.
This May the stock market is only 15 points off it's all time high which was back in October 2007. 2007 being the year we took our funds out of the US market prior to the crash.
The stock market has been on a tear since October and is now at least 20% overbought by the most conservative of estimates. The only thing keeping the stock market up is the fact that it is an election year. The plan seems to be to keep Obama in and Obama's popularity rating is directly proportional to the performance of the S&P 500.
Whatever trick they may have under their belt for the May weekend this year we will see. However, all the fundamentals and technicals are indicating that we are over extended and due a correction very soon. Couple this with the fact that May is the time of year everyone in the business gets out of Risk assets and you have the perfect storm for a correction.
The Apple calls that we sold in March expired worthless on Friday for a full profit for us and the 3.4% portfolio return we received on that trade has brought our portfolio performance up to 15.47% for 2012 so far. I have decided to start making the closed trades viewable to everyone on my blog so you can see our performance. New and open trades will only be available to subscribers.
I have placed 5 new positions in the portfolio this week to capitalize on the May effect. There is something for everyone to invest in whatever your level of Risk or experience.
If you have long positions on the market these positions will act as a hedge. If you are in cash remember there's more money made on the downside.
You can get access to my positions and buy and sell alerts here for a monthly fee of 79.95. The performance of this subscription is 15.47% for the first 4 months of 2012 so far.
Yours Sinceerly,
Robert McManus
