This Day On The Street
Continue to site right-arrow
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

Key Reversals Suggest Sell in May

NEW YORK ( TheStreet) -- On Wednesday, Federal Reserve chief Bernanke testified that it was premature to remove the stimulus on the quantitative easing measures, and stocks surged to new highs. Then in afternoon trading, the Fed minutes suggested otherwise, indicating that the FOMC discussed slowing down the QE purchases.

Stocks soured, with the major equity averages closing below their lows of Tuesday. Wednesday was thus a key reversal for U.S. equities and lower closes today and Friday will confirm the key reversals.

A key reversal day occurs when a market sets a new high for a move then closes below the prior day's low. A key reversal is confirmed by lower closes the next two days. The Dow Industrial Average set a new all-time high, at 15,542.40, on Wednesday, then closed at 15,307.17, below Tuesday's low at 15,325.68.

The S&P 500 set a new all-time high, at 1687.18, then closed at 1655.35, below Tuesday's low at 1662.67. The Nasdaq set a new multi-year high, at 3532.04, then closed at 3463.30, below Tuesday's low at 3486.88.

The Russell 2000 set a new all-time high, at 1008.23, then closed at 982.26, below Tuesday's low at 995.20.

Setting a negative tone this morning is the 7.3% overnight plunge in Japan's Nikkei, down 1,143.28 points, to 14,483.98. In the U.S. markets, I say, Nasdaq 3583, or bust! Or, Nasdaq 3583, then bust!

Including today, there are six trading days left in May to proclaim "sell in May and walk away."

When bubbles inflate, stocks move in an orderly manner to the upside. Once the S&P 500 cleared my semiannual pivot at 1566.9, the upside was to my semiannual pivot at 965.51 on the Russell 2000. Having cleared the small-cap hurdle, my next target has been my semiannual risky level, at 3583, on the Nasdaq, which is only 1.4% above Wednesday's intraday high, at 3532.04. When equity bubbles pop, the major averages cascade back down to these pivots, like magnets!

While the major equity averages traded higher, the yield on the U.S. 30-Year bond has also moved higher. This yield was as low as 2.808% on May 1, and traded as high as 3.244% on Wednesday. Higher stock prices and a higher bond yield resulted in a U.S. equities market with 72.0% of all stocks overvalued. This continues the ValuEngine valuation warning.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
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!
QQQ $105.52 0.00%
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

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