May 2010 In Review, June Preview

Posted by Conrad
May 30, 2010

What a May that was … there was that flash crash that went into a 400-point relief rally and then slow-bled only to go into another 300-point rally. All three benchmarks fell below their 200DSMAs and only the NASDAQ closed out May above its 200. The Dow Jones Industrial Average held above 10,000 in spite of one more triple digit drop on the last day but still lost more than 1,000 points in May. The VIX spiked to a high of 48 – a level not visited since March 2009 as the market “recovered”.

And with that, May 2010 ends as the most aggressive May in the last 20 years, surpassing that awful 2006 May as the biggest loser in recent times.

Remember that we didn’t get a Sell-In-May last year (2009) and remember what I said about that? Well, we’ve paid for it … for some who were ignorant, dearly.

In the Apr/May 2010 issue of INVEST Magazine, I wrote;

We know some of the obvious Self-Fulfilling Prophecies such as;
• Sell in May and Go Away
• October Effect
• Santa Claus Rally
• January Barometer

What most people don’t know is the longer term effects of some of these prophecies when they DON”T happen. And there is a psychological explanation for most of these failed prophecies.

Take for example, the “Sell in May and Go Away” prophecy when investors normally sell off in the month of May. What this prophecy is about is not a bearish May. Rather, May has a good track record of being bullish more than bearish. The prophecy is more about May having one of the more significant corrections than most other months. How May ends up being bullish after the sell off is due to bargain hunters who scoop up “discounted” stocks after that irrational sell off.

But here’s the little known statistic about the “Sell in May” phenomenon that will scare any bull – When May doesn’t sell off, the following year is likely to be bearish or at best, very volatile.

Statistically, it has been the worst May in 48 years. The only other May that is worse than this one was back in 1940, 70 years ago. This May of 2010 will be remembered forever as the Flash Crash. Congratulations people … you lived through a moment in stock market history.

My May in Review

An even busier month than April, May saw every weekend burned doing classes in Malaysia, Jakarta, Singapore and everything else in between …

Between Friday 30 April and Monday 3 May, Kuala Lumpur saw its 10th WAT batch go through a grilling 35 hour weekend to graduate as our latest entrants into the world’s most irrational business.

WATMY10 – 3 May, 2010

On the weekend of 8th and 9th May, Singapore finally got its TA Masterclass.

Then between Friday 14 and Monday 17 May, Jakarta graduated batch 8.

And on Wednesday 19 May, Singapore Graduated its 38th and most cohesive batch to date.

The Wealth Academy Expo on Saturday 22 and Sunday 23 May saw a crowd of no less than 1,200 people attend.

Many thanks to Roy, Dianah, Leon, Gabriel, Jason Tan and Jason Lee for stepping up and giving their testimonials because they know I can’t sell to save my life! Also thanks to Paul and the many other graduates who helped out in convincing the crowd to join our community.

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With the end of May comes the start of June … AND MY LONG AWAITED VACATION!!

But after I come back, it is going to be back to full swing with no respite …

Between the 10th and 13th of June, Adam and I will be back for another round of Wealth Academy followed by a few rounds of speaking engagements and Jakarta’s Technical Analysis Masterclass on the weekend of 19 and 20 June. In between that, its the usual fly-in-fly-out between the three countries to host Gatherings, Workshops and Follow-up sessions.

THE MARKET

June is one of those months where things can get crazy (as if May wasn’t crazy enough) and is often flattish with low volumes. June is the start of the worst 5 months of the trading calendar and it effectively ends NASDAQ’s best eight months of the trading year. The first two days are usually the most bullish days of the month. That’s all the good news June has to offer because June is treacherously bearish with only a little respite in the middle of the month. The week after the June Triple Witching Day has been down 17 of the last 19. Also watch for the end-of-quarter Portfolio Pumping in the last days of June. The very last day of June has been down 13 of the last 18 on the DOW and down the last 4 straight years in a row on the NASDAQ.

Just in case you forgot what happened in June last year …

For those of you feeling a little more adventurous, drag out a 10 year chart with daily candles on the DOW or S&P500 and see how June performs … be prepared for a horror show of bearish proportions! For my students who are reading this, here’s a tip – remember what I said about “Insurance”? June is a good time to get “insured”.

Oil tends to consolidate in June before continuing a reliable up-trend till September. Nat Gas is expected to dip a bit. Gold should retreat from its heady highs while silver bottoms in the middle of June. Copper is also expected to dip further. Sell Grains. If you were long Corn, its time to bail if you didn’t do it in May. Sugar will also be going down.

June has always been a bogey month for me that’s why I usually take a vacation during that month. And this time, its back to Korea, conflicts, tensions and all, for another round of shopping and chilling. At least it will be cooler than this steaming hot island! As a trader, I’ve always maintained that the Korean threat is never going to be a main mover of the market so why should I differ in my opinion if I want to holiday there? I have seen these “threats” time and again over my 46 years and the North has never pulled the trigger to start anything serious since the 1950s. And they are not about to start now. Furthermore, the exchange rate is really a bargain now!!

Spain’s downgrade, Greece’s on-going debt threat, America’s financial reforms, China’s bursting asset bubble, North and South Korea’s on-going tensions, Malaysia’s subsidies slash, market slow-down during the World Cup (11 June to 11 July) … all the usual negatives that we’ve grown so jaded to, may just jump up and bite us in what is usually a summer slumber – it often happens in June.

So …

Happy Hunting! … or better yet, don’t go hunting in June!

Main Page, Market Matters, Observation

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