The Market's Poor May Suggests June Swoon - Forbes

May’s poor performance means June won’t be much better if market history is any guide, according to Ryan Detrick, senior market strategist at LPL Financial, a network of 16,000 financial advisors with $684 billion assets under management. With the S&P 500 trading down more than 6% for the month and in its last session today, it probably means this will be the fifth May in the past 50 years that the U.S. market has dropped 5% or more. Each time June’s performance has been weak, with June itself posting a 5% loss twice, according to Detrick.

“Going back the past 20 years, only September has been worse on average, and returns have been quite poor in June after a big drop in May,” Detrick said in a research note.

In June, the market signs a sad tune.

Courtesy of LPL Financial

Not every sign is bearish, though. In years where the S&P is up 10% year-to-date at this point, as it is now, June has gained 1.9% on average, Detrick adds. In addition, many foreign equity markets are performing well and, as contrarian indicators, the rising put/call ratio on the CBOE and bearish American Association of Individual Investors survey suggest a rebound is coming. It also is helpful to keep in mind that every advancing market needs a throwback now and then.

So are we bullish? Are we bearish? To chart watchers like me, the picture is muddled – which is another way of saying not bullish. Today the VIX is projecting a 5% move for the 30-days to come, which could be that 5% June drop that has occurred twice before. But then again it could mean a 5% gain, since the VIX projects expected range of price moves in the S&P 500 but not which direction. (That said, VIX activity tends to increase when investors are hedging downside risk, hence its reputation as the fear gauge).

More importantly, all the major indexes are in line to settle below their 200-day moving averages today, a long-term sign of weakness. More sophisticated indicators, like Moving Average Convergence Divergence, have turned to a sell signal on the weekly charts of the major U.S. stock indexes if today's drop holds through the close.  On top of all this, the inversion of the Treasury yield curve is a red flag – albeit an unreliable one market timing-wise. Even as there are some interesting arguments for explaining its significance away, it’s a sign better taken seriously given its track record.

In totality, the indicators are saying it wouldn’t hurt to take some profits off the table and enjoy those weekends at the beach this summer.

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https://www.forbes.com/sites/brendancoffey/2019/05/31/the-markets-poor-may-suggests-june-swoon/

2019-05-31 16:22:35Z
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