Don’t buy into this jobs-fueled rally, market timer warns
By Tomi Kilgore; Published: May 8, 2015 12:48 p.m. ET
If stocks get rocked, blame Obama.
The stock market could be set up to get rocked next week…thanks, Obama.
Tom McClellan, editor of the widely-read McClellan Market Report, doesn’t care that a market-friendly jobs report sent stocks surging on Friday. He said he’s turning neutral from bullish after Friday’s close, for both the short- and intermediate-term time frames, and will look to get bearish next week.
While McClellan said the Dow Jones Industrial Average DJIA, +1.49% could still rise a little further, perhaps into Monday, he’s taking his money and running, because he’s worried the Dow could top out a lot earlier, and fall a lot farther over the next couple of weeks, than many might expect.
Why? As the chart suggests, blame the president.
“The month of May in the third year of a presidential term tends to see a bigger drop than other years,” McClellan wrote. “And in the second term of a president’s time in office, it is all the more acute.”
That’s in contrast with the Dow’s average May performance in all years, going back to 1976, while excluding the 1987 outlier.
If stocks get rocked this month, blame the president
Despite the catchy mantra of “sell in May and go away,” McClellan shows how the Dow tends to just muddle along during the first half of the month, before beginning another bullish phase through mid-June. He doesn’t try to explain how the presidential cycle disrupts this average, just that it does.
“Over the next few days, traders and financial news reporters are going to be getting focused on whatever news items are going to rise up to explain this dip,” McClellan said.
Based on seasonal patterns and other timing models, he expects the selloff to bottom in the May 19-to-May 22 time frame. The Dow should then start another rally, before the next significant peak is due in early July.
PS: Interesting interpretation of the comparative chart (omitted here). If the precise timing is taken out of it, it comes close to my own interpretation at this time, as well. It is based on my Indicator. I respect McClellan and he deserves attention. Though I find the detailed timing descriptions rather overdone and may be even simplistic. After all we're dealing here with a very complex market with many factors involved in a dynamic environment.
