A big move is coming

The action in the market over the past few week indicates that a big move is coming. We are swinging between 11250 and 10970 like a deer caught between a Lion and a Tiger. Back and forth we go, sell no buy, no sell, no buy. All of this movement will get the traders to stop chasing the spikes. The news alternates between good and bad from day to day.

At some point the shorts would not chase a sell off on a Nuclear war. The sellers will be convinced that every sell off will come back. That is the point of this. They just give up trying to figure it out and keep the positions they have which at this point are long. In the meantime distribution days are piling up as the institutions sell into the rallies.

Last week they brought up the annual question of sell in May and go away. Today is the first trading day in May and here is what they are saying:

Investors conditioned to backing out of the market as the summer looms might want to rethink their positions after what happened in 2009.

Those adhering to the strategy of "sell in May and go away" until after the summer got crushed last year, missing a 17 percent gain in the Standard & Poor's 500 [.SPX 1204.17 16.01 (+1.35%) ] en route to a relentless rally that continues into the beginning of the new month.

While calls persist that the market has gotten overvalued, many advisors see themselves hanging in—if with a bit more conservative strategy.

"We're going to stick around for a while even though technically we see the market as overextended," says Emily Sanders, president of Sanders Financial Management in Atlanta. "The equity market is still involved in a melt-up situation and as such we're not going to take our clients' exposure away."

Sell-in-May is a strategy that has had mixed results over the years.

It is true that the market as a whole underperforms in the May-October time frame as compared to November-April.

Since 1928, the S&P has gained 1.9 percent in May-October versus 5.1 percent the rest of the year. In the past 10 years the trend is a bit more pronounced with the disparity being 1.4 percent to 6.4 percent respectively.

But investors who have employed the strategy with the entire index have missed market trends that benefit investors who change their allocation into particular sectors rather than just pulling back into money markets or other safe-haven assets.

Investors who invested in the entire S&P index from November until April and then split their portfolios equally between consumer staples [XLP 27.85 0.22 (+0.8%) ] and health care [XLV 31.15 0.27 (+0.87%) ] from May to October realized a compound annual return of 10.8 percent per year for the past 20 years, according to recent research from S&P's chief investment strategist Sam Stovall.

Those who played the entire S&P for the 20-year period would have realized compound gains of 6.7 percent.

There you have it the experts say hang in there because you May miss something good. I like the terms they use to describe the rally. They call it a relentless rally. A synonym for a relentless market is topping or bottoming. When you here the word relentless get ready for a change. Who do you think that statement is pointed at? The shorts or the longs?

Mikey