This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Sell In May? No. Hedge Once Again

NEW YORK ( TheStreet) -- While writing an article about stock buys near 52-week highs, I noticed many of the stocks I reviewed are overbought based on technical analysis. As a result, they were left on the cutting room floor.

I won't include stocks when the chart pattern appears overbought. One company that didn't make the cut was Chimera Investment Corporation (CIM). In the case of Chimera, I'm not convinced it should be shorted. But if you own it, you may want to take some of your gains off the table.

If Chimera shares retrace you can always buy them back and reduce your cost basis. Don't get carried away, though. Unless you're in the market full time, market timing probably isn't an exercise in which you want to engage.

After reviewing more than a few stocks with an overbought status, I decided to take a closer look at the overall market and especially the S&P 500 Index ETF (SPY).

On Monday, the SPY's chart formed a bearish indicator used by market timers. My daily SPY chart has a "13" above Monday's price bar. The 13 stands for a completed DeMark Sequential indicator on the bar. The indicator alone is not enough to start a trade for me; however, the SPY is also breaking through support on the weekly chart.

Combined, the two indications build a compelling case for shorting the market. In a normal, not-manipulated-by-the-government market, I wouldn't hesitate to call this a short. Today is the last day of April, and the adage of "Sell in May and go away" is in my thoughts, too.


Last year, I didn't believe selling In May was the right call. I wrote about last May in "Don't Sell -- Hedge In May and Go Away", and that was the right call. Investors who sold calls against their shares earned option premium while lowering their risk, all without actually selling shares.

This year is slightly different. This year we conjoin "The Affordable Care Act" (ACA), better known as "Obamacare," to the mix of market movers.

We have three principal drivers in the market. The first is obviously the government with quantitative easing. Interest rates are artificially below the fair market value stimulating housing in particular and the overall economy in general.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,031.14 +43.63 0.26%
S&P 500 1,984.13 -1.41 -0.07%
NASDAQ 4,518.9020 -48.6960 -1.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs