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Sell in May—no way!

By Alan Valdes, Director of Floor Operations at Silverbear

While many global markets were closed for “May Day” yesterday, it felt as though the markets in the US were also closed. The Dow (^DJI, DIA) closed down -27.05 to finish at 29,800 on extremely light volume of 288,000,000. The S&P 500 (^GSPC, SPY) eked out a small gain of +4.13 to close at 2,388.

It was the Nasdaq (^IXIC) that made the day worth getting out of bed and putting on a clean shirt. The tech-heavy index closed at an all-time high of 6,091.60 up 44.00—thanks, in part, to the actual and anticipated earnings and forward guidance from Google (GOOGL, GOOG), Amazon (AMZN), Intel (INTC), Apple (AAPL) and Facebook (FB).

Source: Getty
Source: Getty

Apple reports after the bell today, and traders will be watching those iPhone sales, which were projected to come in mostly flat at 52 million vs. 51 million last quarter. We will hear from Facebook tomorrow. Overall, the tech Industry is up 16% for the year.

Today should continue to be rather uneventful as traders wait for Apple earnings. With regard to the Federal Reserve announcement tomorrow, no one expects any rate change. However, traders will be looking for and listening to any talk about unwinding its $4.5 trillion balance sheet. This is by far the biggest balance sheet in the history of the Fed and, in the past, it has rarely been able to tighten the monetary screws without doing damage to the markets. Of course, on Friday, we will get non-farm payroll numbers at 8:30 a.m., which always has potential to move markets.

Here on Wall Street, there is this old saying, “Sell in May, then go away.” For years, traders and fund managers at this time would start planning for a summer out in the Hamptons, the Jersey Shore or one of many playgrounds they tend to inhabit (thinking they were Congressmen).

But the “times,” they are a changing!

First, as far as the times we are living in now, everything is computer-driven, and most trading desks are run with algos and programs that trade constantly on multiple platforms without a break to head east. Second, the competition for commission dollars is ferocious. If a trader heads east, he or she had better do it after 4:00 p.m. on Friday and be back at the trading desk Monday before 9:30 a.m. Last (but most important), there’s just too much money that wants to be put to work.

With the Dow up over 2,000 points since the election, over $2 trillion of new money entering the markets, the VIX (^VIX) trading in single the digits, and the possibility of a Trump tax cut (which could add 300 to 400 points to the S&P by year end), traders would be unwise to sell in May. “Sell in May? … No Way!”